A Missouri pension fund has sued JPMorgan Chase & Co executives and board members over $6.2 billion in trading losses that were revealed last year, citing a recent U.S. Senate report that criticized the bank's management for failing to catch the bad trades.
The Police Retirement System of St. Louis filed the lawsuit against Chairman and CEO Jamie Dimon, as well as other executives and board members, in State Supreme Court in Manhattan on Monday.
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The lawsuit said the defendants breached their duties to shareholders by failing to block the risky trades. The bets were built by a JPMorgan trader who came to be known as the "London Whale."
A JPMorgan representative was not immediately available to comment on the lawsuit.
At the time of the Senate hearings in March, the bank said in a statement: "We have made regrettable errors and overhauled our risk policies to correct these mistakes, but senior JPM executives always provided information to regulators and the public that they believed to be accurate."
JPMorgan faces an array of litigation over the trading losses, including other shareholder cases filed in New York state court as well as Manhattan federal court.
In their court papers, lawyers for the St. Louis pension fund highlighted letters from a union pension adviser, CtW Investment Group, that they said "warned the board multiple times that the company's lack of internal controls and severely flawed risk oversight structure posed serious threats" to the bank.
The letters were from the spring and summer of 2011, according to the lawsuit.
The bank converted its chief investment office, originally intended to reduce risk to the bank, into an "unsupervised proprietary trading operation" that accumulated billions of dollars in high-risk trades, the lawsuit said.
"Although the purpose of JPM's CIO was to hedge against risk, the company's board and senior management oversaw its transformation into a high-stakes casino," said Michael Stocker, a plaintiffs' lawyer at the firm Labaton Sucharow. "That's like filling a fire extinguisher with gasoline."
The lawsuit is a "derivative" case filed on behalf of the company against officers and directors. It seeks damages, as well as corporate governance reforms and other relief.
The case is The Police Retirement System of St. Louis, derivatively and on behalf of JPMorgan Chase & Co v. JPMorgan Chase & Co, New York County Supreme Court, No 651161/2013
(Editing by Martha Graybow and Matthew Lewis)