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JPMorgan couldn’t convince a federal appeals court to review a decision forcing the company to defend a class action challenging its stable value funds ( In re JPMorgan Stable Value , 2d Cir., No. 17-01091, order denying leave to appeal 6/27/17 ).
The U.S. Court of Appeals for the Second Circuit on June 27 denied JPMorgan Chase & Co.'s request for an immediate appeal of a decision granting class action status to thousands of workers who invested their retirement savings in the company’s stable value funds. The court’s one-paragraph order said only that “an immediate appeal is unwarranted” in this case.
Stable value funds—which are meant to be conservative, low-risk options that protect against interest rate volatility—have become a flashpoint in litigation under the Employee Retirement Income Security Act. Retirement plan sponsors including Anthem Inc., Chevron Corp., and Insperity Inc. have been sued—unsuccessfully—for failing to include stable value funds in their investment lineups. Other lawsuits have targeted the companies that offer and manage stable value funds, with cases pending against Massachusetts Mutual Life Insurance Co. and Prudential Retirement Insurance & Annuity Co. Two companies— CVS Health Corp. and Fidelity Management Trust Co.—recently defeated lawsuits challenging their stable value practices, and a magistrate judge recommended dismissing a similar case against a subsidiary of Principal Financial Group Inc.
The lawsuit against JPMorgan accuses the company of mismanaging its stable value funds by overinvesting them in risky mortgage-related assets. Investors challenged the company’s decision to invest 78 of its stable value funds in a proprietary bond fund tied to “risky, highly-leveraged assets,” including mortgage-backed securities. The investors painted this strategy as imprudent, claiming that it caused losses that ultimately drove down the crediting rates that determined the return they received on their investments.
The Second Circuit’s decision was issued by Judges Robert D. Sack, Peter W. Hall, and Christopher F. Droney.
Morgan, Lewis & Bockius LLP represents JPMorgan. Kennedy & Madonna LLP represents the investors.
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