JP Morgan Chase 2014 Annual Report Download - page 300

Notes to consolidated financial statements
298 JPMorgan Chase & Co./2014 Annual Report
previously raised by the court-appointed trustee for
Bernard L. Madoff Investment Securities LLC. The District
Court dismissed these complaints and the United States
Court of Appeals for the Second Circuit affirmed the District
Court’s decision. Plaintiffs have petitioned the United States
Supreme Court for a writ of certiorari.
The Firm is a defendant in five other Madoff-related
individual investor actions pending in New York state court.
The allegations in all of these actions are essentially
identical, and involve claims against the Firm for, among
other things, aiding and abetting breach of fiduciary duty,
conversion and unjust enrichment. In August 2014, the
Court dismissed all claims against the Firm. Plaintiffs have
filed a notice of appeal.
A putative class action has been filed in the United States
District Court for the District of New Jersey by investors who
were net winners (i.e., Madoff customers who had taken
more money out of their accounts than had been invested)
in Madoff’s Ponzi scheme and were not included in the
previous class action settlement. These plaintiffs allege
violations of the federal securities law, federal and state
racketeering statutes and multiple common law and
statutory claims including breach of trust, aiding and
abetting embezzlement, unjust enrichment, conversion and
commercial bad faith. A similar action has been filed in the
United States District Court for the Middle District of
Florida, although it is not styled as a class action, and
includes a claim pursuant to a Florida statute. The Firm has
moved to transfer these cases to the United States District
Court for the Southern District of New York.
Three shareholder derivative actions have also been filed in
New York federal and state court against the Firm, as
nominal defendant, and certain of its current and former
Board members, alleging breach of fiduciary duty in
connection with the Firm’s relationship with Bernard Madoff
and the alleged failure to maintain effective internal
controls to detect fraudulent transactions. The actions seek
declaratory relief and damages. In July 2014, the federal
court granted defendants’ motions to dismiss two of the
actions. One plaintiff chose not to appeal and the other filed
a motion for reconsideration which was denied in November
2014. The latter plaintiff has filed an appeal. In the
remaining state court action, a hearing on defendants’
motion to dismiss was held in October 2014, and the court
reserved decision.
MF Global. J.P. Morgan Securities LLC has been named as
one of several defendants in a number of putative class
actions filed by purchasers of MF Global’s publicly traded
securities asserting violations of federal securities laws and
alleging that the offering documents contained materially
false and misleading statements and omissions regarding
MF Global. These actions have been settled, subject to final
approval by the court. The Firm also has responded to
inquiries from the CFTC relating to the Firm’s banking and
other business relationships with MF Global, including as a
depository for MF Global’s customer segregated accounts.
Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. JPMorgan Chase and
affiliates (together, “JPMC”), Bear Stearns and affiliates
(together, “Bear Stearns”) and certain Washington Mutual
affiliates (together, “Washington Mutual”) have been named
as defendants in a number of cases in their various roles in
offerings of mortgage-backed securities (“MBS”). These
cases include class action suits on behalf of MBS
purchasers, actions by individual MBS purchasers and
actions by monoline insurance companies that guaranteed
payments of principal and interest for particular tranches of
MBS offerings. Following the settlements referred to under
“Repurchase Litigation” and “Government Enforcement
Investigations and Litigation” below, there are currently
pending and tolled investor and monoline insurer claims
involving MBS with an original principal balance of
approximately $41 billion, of which $38 billion involves
JPMC, Bear Stearns or Washington Mutual as issuer and $3
billion involves JPMC, Bear Stearns or Washington Mutual
solely as underwriter. The Firm and certain of its current
and former officers and Board members have also been
sued in shareholder derivative actions relating to the Firm’s
MBS activities, and trustees have asserted or have
threatened to assert claims that loans in securitization
trusts should be repurchased.
Issuer Litigation – Class Actions. Two class actions remain
pending against JPMC and Bear Stearns as MBS issuers in
the United States District Court for the Southern District of
New York. In the action concerning JPMC, plaintiffs’ motion
for class certification has been granted with respect to
liability but denied without prejudice as to damages. In the
action concerning Bear Stearns, the parties have reached a
settlement in principle, which is subject to court approval.
The Firm is also defending a class action brought against
Bear Stearns in the United States District Court for the
District of Massachusetts, in which the court’s decision on
defendants’ motion to dismiss is pending.
Issuer Litigation – Individual Purchaser Actions. In addition
to class actions, the Firm is defending individual actions
brought against JPMC, Bear Stearns and Washington Mutual
as MBS issuers (and, in some cases, also as underwriters of
their own MBS offerings). These actions are pending in
federal and state courts across the U.S. and are in various
stages of litigation.
Monoline Insurer Litigation. The Firm is defending two
pending actions relating to the same monoline insurer’s
guarantees of principal and interest on certain classes of 11
different Bear Stearns MBS offerings. These actions are
pending in state court in New York and are in various stages
of litigation.
Underwriter Actions. In actions against the Firm solely as an
underwriter of other issuers’ MBS offerings, the Firm has
contractual rights to indemnification from the issuers.
However, those indemnity rights may prove effectively
unenforceable in various situations, such as where the
issuers are now defunct. There are currently actions of this
type pending against the Firm in federal and state courts in