JPMorgan Chase & Co has been hit with a lawsuit brought on behalf of employees whose retirement holdings fell in value after the largest US bank revealed a surprise $2 billion trading loss earlier this month.
The complaint, filed late Monday in US District Court in Manhattan, also names individual defendants, including Chief Executive Jamie Dimon and Ina Drew, who stepped down last week as head of JPMorgan’s chief investment office, where the loss occurred.
The defendants were accused of violating their duties to 401(k) and other retirement plan participants by including company stock as an investment option, hiding the stock’s risk, and failing to move participants to safer choices.
“The plans suffered hundreds of millions of dollars of losses,” the complaint said. “If defendants had discharged their fiduciary duties to prudently manage and invest the plans’ assets, the losses suffered by the plans would have been minimized or avoided.”
Shares of JPMorgan have fallen as much as 20.8 per cent since the New York-based bank revealed a $2 billion trading loss synthetic credit products, a type of derivative, on May 10, when its stock traded at $40.74.
In Tuesday morning trading, JPMorgan shares were up $1.49, or 4.6 per cent, at $34 on the New York Stock Exchange.
JPMorgan did not immediately respond to requests for comment. Lawyers who filed the lawsuit were not immediately available for comment.
The 401(k) plan covers substantially all US employees.
As of December 31, 2010, the last date for which data was immediately available, the plan held $14.64 billion of investments, including $2.79 billion of JPMorgan stock.
Starting with the 2011 plan year, matching contributions were to be made in the same manner as participant contributions. Previously, company stock could be used for matching.
The lawsuit was brought by Gregory Scrydloff, who according to brokerage records worked at the Chase Investment Services unit or a predecessor for 17 years ending in January.
It seeks class-action status for current and former employees who participate in JPMorgan retirement plans from April 13, when the bank reported first-quarter results, to the present.
The lawsuit alleges violations of the federal Employee Retirement Income Security Act. Such lawsuits over the inclusion of company stock as a plan investment option are common after the price of that stock suffers a large or surprise decline.
JPMorgan has faced intense criticism since revealing the trading loss, which many analysts believe can grow. The bank and its directors face many shareholder lawsuits.
Dimon, a strong critic of the Volcker rule designed to restrict banks’ trading activity, called JPMorgan’s handling of the trades “stupid,” and said “egregious mistakes” were made.
The plaintiff’s name is misspelled in the case caption, which is Scrydoff v. JPMorgan Chase & Co et al, US District Court, Southern District of New York, No. 12-04027.
