JPMorgan class action may hinge on when alleged fraud began

June 19, 2012

The last time I wrote about the securities fraud class action claims against JPMorgan Chase for the losses it suffered in risky credit default swaps, I told you to pay attention to the unusually short class period alleged in the early complaints. The first couple of filings claimed the bank’s deception of investors began on April 13 – the day JPMorgan CEO Jamie Dimon told analysts that news reports about the dangerous trading position of its chief investment office were a “tempest in a teapot” – and ended on May 10, when the bank disclosed the initial $2 billion loss of the “London Whale.”

Two institutional investors joined the JPMorgan fray last week in federal court in Manhattan, and suddenly the class period has become a point of controversy. A pipefitters’ union trust fund represented by Labaton Sucharow claims that the bank’s fraud began not on April 13 but three months earlier, on Jan. 13. That was the date JPMorgan filed an annual report with the Securities and Exchange Commission that allegedly failed to warn investors about the looming CIO losses, “instead offering a false and misleading picture of stable and consistent operational strategy and risk exposure.”

The Louisiana Municipal Police Employees’ Retirement System, represented by Grant & Eisenhofer, put the beginning of the alleged fraud long before the 2012 annual report. According to the LAMPERS complaint, filed Friday, JPMorgan began deceiving shareholders about its exposure all the way back in February 2010, when it published a misleading description of the CIO in its annual report. From then on, LAMPERS claims, the bank ignored so-called red flag warnings and continued to mislead investors about its risky hedges.

To understand why the funds want to change the initially asserted class parameters, you have to look at the certifications at the end of the Pipefitters Local Union 537 and the LAMPERS complaints, where each of the funds discloses its JPMorgan holdings. Remember, these are sophisticated securities class action plaintiffs represented by two of the best firms in the business, so the alleged class periods are no accident. The funds and their lawyers know that only plaintiffs who bought or sold shares within the specified class period can participate in the case, and the lead plaintiff spot will likely go to the shareholder with the biggest losses. The Pipefitters’ certification states that beginning on March 2, the union fund bought more than 45,000 shares of JPMorgan stock, paying more than $1.5 million. But its last purchase was on April 11, two days before Dimon’s “tempest in a teapot” remark. Under the shorter class period alleged in the first JPMorgan fraud complaints, the union fund wouldn’t be much of a player.

LAMPERS would have even less chance to be lead plaintiff than the Pipefitters, under the initial asserted class period. The fund made its last JPMorgan purchase on April 4, when it bought 500 shares. The bulk of its JPMorgan buys, however, were between May and December of 2010, when it acquired more than 20,000 shares. Unless LAMPERS can persuade the judge presiding over the case – right now, it’s U.S. District Judge George Daniels – that the alleged fraud began in 2010, it’s likely to be on the sidelines as this case is litigated.

I left messages with Pipefitters counsel Christopher Kelly of Labaton, LAMPERS counsel Jay Eisenhofer of G&E and JPMorgan counsel Daryl Libow of Sullivan & Cromwell. None of them got back to me.

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