JPMorgan’s legal expenses reach $1.1bn in 2020
JPMorgan Chase & Co. (NYSE:JPM) has posted its 10-K report for 2020, with the document providing information on the status of legal proceedings in which the firm is involved.
JPM has established reserves for several hundred of its currently outstanding legal proceedings. The firm’s legal expense was $1.1 billion for the year ended December 31, 2020. This compares with $239 million in legal expenses a year earlier. There is no assurance that JPM’s litigation reserves will not need to be adjusted in the future.
Let’s note that a number of cases involving JMP concern Forex.
The firm 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, JPM 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 the firm remaining in good standing throughout the probation period. The Department of Labor granted JPM 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 FX 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 JPM and a number of other FX 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 Court approved a settlement by JPM and 11 other defendants of a class action filed by purported indirect purchasers for a total of $10 million. 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 note the developments in metals and U.S. Treasuries investigations and litigation and related inquiries.
JPM previously reported that it and/or certain of its subsidiaries had entered into resolutions with the United States Department of Justice (DOJ), the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The resolutions, 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 as set forth therein. 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.
Also, several putative class actions have been filed in the United States District Courts for the Northern District of Illinois and Southern District of New York against JPM, alleging manipulation of U.S. Treasury futures and options, and bringing claims under the Commodity Exchange Act. Some of the complaints also allege unjust enrichment. The actions in the Northern District of Illinois have been transferred to the Southern District of New York. The Court consolidated these putative class actions in October 2020 and set a deadline of February 2021 for the filing of a consolidated complaint.
Finally, two putative class action complaints have also been filed under the Securities Exchange Act of 1934 in the New York Eastern District Court against JPM and certain individual defendants on behalf of shareholders who acquired shares during the putative class period alleging that certain SEC filings of the firm were materially false or misleading in that they did not disclose certain information relating to the above-referenced investigations. Plaintiffs have filed a stipulation seeking consolidation of the actions and the appointment of co-lead plaintiffs and counsel, which is pending Court approval.
Given the difficulty of predicting the outcome of legal proceedings, JPMorgan cannot state with confidence what will be the eventual outcomes of the currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or consequences related to those matters.