JPMorgan Wins Again in ERISA Challenge to ‘London Whale’

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

Sept. 8 — Employees accusing JPMorgan Chase & Co. of ERISA violations tied to risky investments made by a trader nicknamed the “London Whale” lost their appeal Sept. 8 ( Loeza v. JPMorgan Chase & Co. , 2016 BL 292694, 2d Cir., No. 16-222, unpublished 9/8/16 ).

In a terse, five-page order, the U.S. Court of Appeals for the Second Circuit said that the lawsuit was based on “wholly conclusory” allegations that were insufficient to state a claim for fiduciary breach under the Employee Retirement Income Security Act.

This decision reinforcing the high bar that employees must clear to bring ERISA challenges to stock losses comes one day after a federal judge used the same high bar to dismiss a similar lawsuit against International Business Machines Corp. Lehman Bros., Pilgrim’s Pride Corp. and Edison International have all prevailed in recent lawsuits making similar claims.

Bar Is High

Both cases, which were litigated by New York law firm Zamansky LLC, accused corporate executives of exposing employees’ retirement savings to losses by concealing negative business information that caused company stock to be artificially inflated. The case against JPMorgan centered on risky investments made by trader Bruno Iksil, nicknamed “the London Whale,” whose large derivatives market bets resulted in a $6.2 billion trading loss for the company in 2012.

Both the Second Circuit and the federal judge hearing the IBM case found that the new pleading standards established by the U.S. Supreme Court in 2014 proved fatal to the employees’ claims.

Under that standard, workers challenging their employer’s decision to hold company stock in their retirement plan must identify another course of action the plan’s fiduciaries could have taken. The alternative action must be consistent with securities laws and not, in the view of a prudent fiduciary, likely to do more harm than good to the value of company stock.

While courts have routinely interpreted this standard as a very high bar for plaintiffs, the Department of Labor is arguing otherwise. Borrowing a phrase from “The Merchant of Venice,” the DOL recently filed an appellate court brief advising retirement plan fiduciaries that “truth will out”—in other words, that they won’t do more harm than good to their plan by disclosing a corporate fraud that will ultimately come to light and potentially do even more damage to the company stock held by the plan.

Hope for Plaintiffs?

Despite this string of losses, Samuel Bonderoff, a partner with Zamansky LLC in New York and counsel to the employees suing both JPMorgan and IBM, said that ERISA-based challenges to employer stock losses still can succeed in certain circumstances.

In a Sept. 8 e-mail, Bonderoff told Bloomberg BNA that both the IBM and JPMorgan decisions “suggest the path forward in ESOP fiduciary duty cases.”

“The simple fact that you have insider fiduciaries who are aware of fraud that is artificially inflating the company stock price isn’t enough to plead a prudence claim,” Bonderoff said. “You have to plead specific facts about the information the fiduciary should have considered in deciding whether to act on that knowledge of fraud.”

According to Bonderoff, these facts “might include the quantity of ESOP purchases made at artificially inflated prices, the degree to which the artificial inflation increased or decreased over time, and the extent to which the company stock trades in an efficient market.”

Bonderoff emphasized that the judge hearing the IBM case gave them another opportunity to state their claims against the company. As for the JPMorgan decision, Bonderoff said he was “disappointed that the Court seems not to have engaged in much critical thinking about these issues, and we’re considering all our options going forward.”

The victory for JPMorgan was announced in an unpublished summary order joined by Judges Ralph K. Winter, Denny Chin and Christopher F. Droney.

JPMorgan was represented by Sullivan & Cromwell, which didn’t immediately respond to Bloomberg BNA’s request for comments.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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