Louisiana Pension Sues JP Morgan Over Alleged Breach of Fiduciary Duty

(November 9, 2011) — The pension fund for Louisiana’s municipal police, a JP Morgan investor, has sued the bank over sanction violations. 

On August 25, the bank agreed to pay the US Treasury $88.3 million to resolve violations of sanctions on Cuba, Iran, Sudan, Liberia along with measures aimed at thwarting the support of terrorism and the proliferation of weapons of mass destruction. In the complaint, the Louisiana Municipal Police Employees Retirement System asserted that the board “embraced or recklessly disregarded the company-wide business strategy based on repeated and systematic violations of federal law.”

“The misconduct occurred, unchecked, under the defendants’ watch because of their complicity in the improprieties alleged herein,” the pension fund said in the complaint. “Because of its acquiescence in the scheme, JPMC’s board cannot be disinterested and independent.”

The Treasury asserted that JP Morgan maintained prohibited financial transactions with sanctioned entities. The JP Morgan payment agreed upon by the Office of Foreign Assets Control (OFAC) involved “egregious” violations for five years, according to a Treasury Department statement.

The case is Louisiana Municipal Police Employees Retirement System v. Dimon, 653083/2011, New York State Supreme Court (Manhattan). 

In late October, Indiana’s pension funds started unloading nearly $16 million in investments in two companies which do business in Sudan. Indiana Public Retirement System (INPRS) executive director Steve Russo told Indiana Public Media that three companies were dropped from the state’s watchlist after the fund contacted them in February. Currently, the state is in the process of unloading investments in mining-equipment company Atlas Copco and the natural gas and diesel engineering firm Wärtsilä OYJ.

In 2007, Sudan’s human rights violations prompted legislators to prohibit pension-fund investments in companies doing business there. The law currently gives the Indiana scheme three years to begin the divestment process, and a total of five years to finalize the process. The state department lists Iran, Syria, Cuba, and Sudan as state sponsors of terrorism.

The decision by INPRS follows a move by the nation’s largest public pension fund to slash its investment associations with Iran and Sudan, fully complying with state divestment laws passed in 2006 and 2007. In May, the California Public Employees’ Retirement System (CalPERS), worth roughly $236 billion, asserted that it planned to shed the rest of its Sudan and Iran-linked holdings.

The move came in response to strong sanctions adopted in 2010 by the federal government, the United Nations, and European Union, which started the withdrawal of several large multi-national oil and energy companies from Iran, which has been identified as a state sponsor of terrorism, as well as Sudan, which has been cited for genocidal acts. In 2006, the California Legislature passed laws instructing the state’s pensions — CalPERS and California State Teachers’ Retirement System (CalSTRS) — to withdraw their money from Sudan and Iran a year later. Instead of ordering immediate divestment, however, the laws provided the pensions with additional time to give them greater ability to follow through on their fiduciary duty. Following the legislation, CalPERS adopted an initial Sudan divestment policy in 2006. While the nation’s largest public fund once had $2 billion invested in 47 companies in the two countries, as of May CalPERS owned shares valued at approximately $160 million in only eight companies that fell within the parameters of the State’s Iran and Sudan divestment acts, according to a statement on the fund’s website.