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JPMorgan Chase (JPM) Shareholder Derivative Lawsuit

This is a shareholder derivative lawsuit brought against the board or directors of JPMorgan Chase.  It alleges that the board systemically failed in its role to oversee the bank’s operations leading to billions of dollars in government fines and settlement payments in civil actions. 

Every month it seems investors pick up the Wall Street Journal and read that JP Morgan has settled with the government for misconduct that resulted in the bank paying a huge settlement fine.  Such headlines include the following: 

  • JPMorgan pays $2.32 billion for the banks role in manipulation of the LIBOR rate.
  • JP Morgan pays $4.5 billion to settle claims brought by institutional investors for the bank’s role in the subprime debacle.
  • JP Morgan pays $13 billion in government fines for the banks role in making false statements about the quality of its mortgage-backed securities.
  • JPMorgan pays $2.6 billion in fines for the banks role in acting effectively as Madoff’s banker.
  • JP Morgan pays $410 million for its role in eight bid rigging and manipulation schemes in the electricity market.
  • JP Morgan’s board of directors do owe certain important duties to JPMorgan shareholders

Each board member (and officers too) of JPMorgan owe well established duties to JPMorgan shareholders

What are the duties of the board of directors and officers of JPMorgan?  These duties include the following:
  • fiduciary obligations of trust, loyalty, good faith, and due care, and were and are required to use their utmost ability to control and manage JPMorgan in a fair, just, honest, and equitable manner. 
  • fiduciary duties to act in furtherance of the best interests of JPMorgan and not in furtherance of their personal interest or benefit.
  • fiduciary duty to exercise good faith and diligence in the administration of the affairs of the Company and in the use and preservation of its property and assets, and the highest obligations of fair dealing.
  • fiduciary duties to exercise reasonable and prudent supervision over the management, policies, practices, and controls of the financial affairs of the Company. 

What do these duties allegedly require of the board and certain officers?

  • ensure that the Company was operated in a diligent, honest and legal manner in compliance with all applicable federal, state and international laws, rules and regulations and that the Company complied with its legal obligations and requirements;
  • implement and provide effective oversight and supervision of proper rules, regulation, or internal controls to prevent manipulative bidding strategies in the electricity markets and the manipulation of LIBOR-related benchmark interest rates;
  • implement and provide oversight and supervision of effective policies, procedures to prevent violations of the Bank Secrecy Act and of the Foreign Corrupt Practices Act;
  • ensure effective due diligence and quality control processes; 
  • properly and accurately guide investors and analysts as to the true financial condition of the Company, including making accurate statements about the Company’s business prospects, and financial results and ensuring that the Company maintained an adequate system of financial controls such that the Company’s financial reporting would be true and accurate at all times;
  • conduct the affairs of the Company in an efficient, business-like manner in compliance with all applicable laws, rules, and regulations so as to make it possible to provide the highest quality performance of its business, to avoid wasting the Company’s assets, and to maximize the value of the Company’s stock; and
  • remain informed as to how JPMorgan conducted its operations, and, upon receipt of notice or information of imprudent or unsound conditions or practices, make reasonable inquiry in connection therewith, and take steps to correct such conditions or practices and make such disclosures as necessary to comply with applicable laws.
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