Jamie Dimon sounded more like a plaintiff's attorney than a chief executive when he described JPMorgan Chase & Co over the weekend as "stupid" and "sloppy" for its $2 billion trading loss.
But for any shareholder seeking to seize on those comments as grist for a securities lawsuit against the bank and its executives, it likely will be tough to use Dimon's words against him, according to lawyers and legal experts.
"I guarantee someone will put in their complaint that he said 'we screwed up,'" said Steven Toll, a plaintiff's attorney with Cohen Milstein Sellers & Toll PLLC in Washington w h o specializes in bringing shareholder lawsuits. "It's good color, but is it an admission of fraud? No. For a fraud case, it won't carry the day."
Investors may have potential federal securities fraud claims against the bank if they can prove that JPMorgan and its managers knew of the potential for such a large loss and recklessly hid that from investors or misled them about it. The loss has tarnished the bank's reputation for risk management and turned embarrassing attention on Dimon, a critic of heightened financial regulation.
Plaintiff's attorneys said they were discussing with unspecified institutional investor clients possible legal action, including lawsuits or dialogue with the bank on ways to improve governance.
JPMorgan on Monday did not immediately respond to a request for comment on possible litigation. A search of public court records in New York and Delaware, where the company is incorporated, did not reveal any investor lawsuits against the bank over the trading loss as of Monday afternoon.
Dimon said in a television interview broadcast on Sunday that "we know we were sloppy. We know we were stupid. We know there was bad judgment."
Dimon's admissions may reflect a well-thought out defense that does not admit misleading anyone, said Adam Pritchard, a professor at the University of Michigan Law School.
"He's not giving away anything his lawyers don't want him to give away," he said.
Gerry Silk, a plaintiff's attorney with Bernstein Litowitz Berger & Grossmann LLP in New York, said any statements by the bank that suggested the hedge was of little risk could expose JPMorgan to allegations it misled investors. Investors could have a claim for the 11 percent drop in the bank's stock price since the trading loss was revealed.
But to make that claim bear fruit, investors would have to prove the bank acted recklessly or intentionally misled investors.
In April, Dimon's called concerns about the bank's hedging strategy "a tempest in a teacup."
Larry Hamermesh, a professor at Widener University School of Law in Delaware, said if the size and potential risks of the bank's hedging position were public, then Dimon's "teacup" description becomes a matter of opinion, not fact.
"Saying 'You screwed up' is not going to get you a seat at the litigation table," he said. "Dimon's characterization is not something you want to make a securities lawsuit about."
Investors could have claims under Delaware corporate law if they can prove that Dimon and other managers at the bank either did not have a proper system in place to monitor the risk or knew of the risk and ignored it.
These so-called "derivative" claims would allow investors to sue Dimon and other managers for damage they caused to the company. Any money recovered would be paid by the defendants to the bank, so shareholders would only benefit indirectly.
Such lawsuits face higher procedural hurdles than do securities fraud class-action cases. And even if investors clear those hurdles, the so-called "business judgment rule" often can come into play, protecting boards and executives from being second-guessed by judges and investors.
The question becomes "How wrong are you allowed to be?" said plaintiff's attorney Christine Azar, of law firm Labaton Sucharow LLP in Wilmington.
By Tom Hals
Source: The Chicago Tribune