‘London Whale’ Appeal Mired by Murky Laws

(CN) – Delaware law does not offer clear direction on how to judge whether JPMorgan Chase’s board adequately investigated its executives’ actions and alleged misstatements in the London Whale debacle, the Second Circuit said.
Bruno Iskil, the former head of Chase’s Synthetic Credit Portfolio, earned the London Whale nickname when he was blamed for $6.3 billion in losses in 2012, stemming from bad bets on credit default swaps he made for the bank.
The bank paid $920 million to U.S. and U.K. regulators in 2013 for its “unsafe and unsound practices” that led to the scandal.
Shareholders, led by Ernesto Espinoza, sued JPMorgan derivatively, seeking to hold its board liable for failing to oversee its traders.
Espinoza challenges JPMorgan’s decision not to take any further action against the alleged wrongdoers, contending that the board’s investigation into his demand was unreasonably narrow.
“Specifically, Espinoza alleges that the board’s investigation only looked into the underlying trading losses, but did not explore certain alleged misstatements that JPMorgan executives made about those losses. Espinoza asserts that these misstatements exposed JPMorgan to significant liability, and should have led the board to take action against the executives involved,” according to the appeal court’s Wednesday opinion.
In particular, CEO James Dimon stated in April 2012 that the media’s attention on the losses were a “complete tempest in a teapot.” Espinoza asserts that this misstatement exposed JPMorgan to litigation, regulatory liability, and inflated the bank’s share price by misleading investors about the scope of JPMorgan’s risk exposure.
Espinoza argues that because the board never investigated the misstatements made by Dimon and others, it never exercised any business judgment that could be entitled to protection under the business-judgment rule.

Read on.

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