JPMorgan estimates possible litigation-related losses at up to $1.7bn
JPMorgan Chase & Co. (NYSE:JPM) has posted its 10-Q report with the SEC, with the document revealing JPM’s assessment of litigation-related contingencies.
As of September 30, 2020, the firm and its subsidiaries and affiliates are defendants, putative defendants or respondents in numerous legal proceedings, including private, civil litigations and regulatory/government investigations. These legal proceedings are at varying stages of adjudication, arbitration or investigation, and involve each of the firm’s lines of business and several geographies and a wide variety of claims (including common law tort and contract claims and statutory antitrust, securities and consumer protection claims), some of which present novel legal theories.
JPMorgan believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $0 to approximately $1.7 billion at September 30, 2020. This estimated aggregate range of reasonably possible losses was based upon information available as of that date for those proceedings in which the firm believes that an estimate of reasonably possible loss can be made.
Let’s note that some of the legal proceedings targeting JPMorgan are related to FX.
JPMorgan previously reported settlements with certain government authorities relating to its FX sales and trading activities and controls related to those activities. Among those resolutions, in May 2015, the firm pleaded guilty to a single violation of federal antitrust law. In January 2017, the Firm was sentenced, with judgment entered thereafter and a term of probation ending in January 2020. The term of probation has concluded, with JPMorgan remaining in good standing throughout the probation period.
The Department of Labor granted JPMorgan a five-year exemption of disqualification that allows the firm and its affiliates to continue to rely on the Qualified Professional Asset Manager exemption under the Employee Retirement Income Security Act (“ERISA”) until January 2023. The firm will need to reapply in due course for a further exemption to cover the remainder of the ten-year disqualification period.
A South Africa Competition Commission matter is the remaining FX-related governmental inquiry, and is currently pending before the South Africa Competition Tribunal.
In August 2018, the United States District Court for the Southern District of New York granted final approval to the Firm’s settlement of a consolidated class action brought by U.S.-based plaintiffs, which principally alleged violations of federal antitrust laws based on an alleged conspiracy to manipulate foreign exchange rates and also sought damages on behalf of persons who transacted in FX futures and options on futures.
Certain members of the settlement class filed requests to the Court to be excluded from the class, and certain of them filed a complaint against the Firm and a number of other foreign exchange dealers in November 2018. A number of these actions remain pending. Further, putative class actions have been filed against the Firm and a number of other foreign exchange dealers on behalf of certain consumers who purchased foreign currencies at allegedly inflated rates and purported indirect purchasers of FX instruments; these actions also remain pending in the District Court.
In 2020, the Firm and 11 other defendants agreed to settle the class action filed by purported indirect purchasers for a total of $10 million. That settlement remains subject to court approval. In addition, some FX-related individual and putative class actions based on similar alleged underlying conduct have been filed outside the U.S., including in the U.K., Israel and Australia.
Let’s also note the metals and U.S. Treasuries investigations and litigation. JPMorgan previously reported that it and/or certain of its subsidiaries had entered into resolutions with the U.S. Department of Justice (DOJ), the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), which, collectively, resolved those agencies’ respective investigations relating to historical trading practices by former employees in the precious metals and U.S. treasuries markets and related conduct from 2008 to 2016.
The Firm entered into a Deferred Prosecution Agreement (“DPA”) with the DOJ in which it agreed to the filing of a criminal information charging JPMorgan Chase & Co. with two counts of wire fraud and agreed, along with JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC, to certain terms and obligations. Under the terms of the DPA, the criminal information will be dismissed after three years, provided that JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC fully comply with all of their obligations.
Across the three resolutions with the DOJ, CFTC and SEC, JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC agreed to pay a total monetary amount of approximately $920 million. A portion of the total monetary amount includes victim compensation payments.
Several putative class action complaints have been filed in the United States District Court for the Southern District of New York against the Firm and certain former employees, alleging a precious metals futures and options price manipulation scheme in violation of the Commodity Exchange Act. Some of the complaints also allege unjust enrichment and deceptive acts or practices under the General Business Law of the State of New York. The Court consolidated these putative class actions in February 2019, and the consolidated action is stayed through May 2021.