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From Banking and Finance Law Daily, December 22, 2015

JPMorgan agrees to $150M London Whale settlement

By Anne Sherry, J.D.

Following two years of discovery and mediation, JPMorgan and the victims of the London Whale scandal agreed to settle for $150 million, subject to court approval. The securities-fraud class action alleges that Jamie Dimon and Doug Braunstein understated the risks and losses arising from the London Whale’s trading activities (In re JPMorgan Chase & Co. Securities Litigation, December 18, 2015).

According to the allegations, a London-based trader in JPMorgan’s Chief Investment Office, rather than managing risks through hedging, conducted proprietary trading in a synthetic credit portfolio (SCP). When the size of the SCP positions triggered JPMorgan’s value at risk (VaR) limit, Dimon both temporarily increased the bank’s VaR limit and changed the model to instantly cut the VaR in half. After hedge funds and the media began to pick up on the resulting distortion in certain derivatives markets, Dimon, Braunstein, and CIO Ina Drew allegedly undertook a calculated public-relations strategy to comfort investors.

In May 2012, Dimon revealed the changes to the VaR model and admitted that the SCP had incurred $2 billion in losses and counting. The stock price fell from $40.74 to $32.51 in the following week and a half as the true extent of the losses emerged. One lead plaintiff, the Ohio Public Employees Retirement System, alone lost $2.5 million as a result of the alleged fraud at the bank. In a statement, the state said that all class members, including individuals, will be notified of their class status in the next few weeks.

The proposed plan to allocate the settlement fund takes into account the amounts by which JPMorgan’s stock price was inflated at various points and when an authorized claimant acquired and sold stock. The lead plaintiffs assert that the settlement provides for substantial, immediate monetary benefits and eliminates the risk that further litigation will lead to a smaller recovery or none at all.

The case is No. 12-cv-03852.

Attorneys: Daniel L. Berger (Grant & Eisenhofer P.A.), Salvatore Graziano (Bernstein Litowitz Berger & Grossman LLP), and David Kessler (Kessler Topaz Meltzer & Check LLP) for lead plaintffs and the class. Keith Ketterling (Stoll Stoll Berne Lokting & Shlachter P.C.) for the Oregon Public Employee Retirement Fund.

Companies: JPMorgan Chase & Co.

MainStory: TopStory SecuritiesDerivatives NewYorkNews OhioNews OregonNews

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