Pensions Allege JPMorgan Transformed CIO Unit Into Risky Prop-Trading Desk

(November 25, 2012) — A group of pension funds have claimed that JPMorgan turned its chief investment office into a secret hedge fund that caused more than $6.2 billion in losses.

JPMorgan Chief Executive Officer Jamie Dimon “secretly transformed the CIO from a risk management unit into a proprietary trading desk whose principal purpose was to engage in speculative, high-risk bets designed to generate profits,” the plaintiffs alleged, as reported by Bloomberg. The lead plaintiffs, which include the Arkansas Teacher Retirement System, the Ohio Public Employees Retirement System, and the state of Oregon, allege that the bank’s risk-management practices misled investors, causing the more than $6.2 billion in losses.

The complaint was filed on behalf of JPMorgan shareholders who bought stock between February 24, 2010, when the company filed its 2009 earnings report with regulators, and May 21, 2012, when the bank revealed it was putting an ends to a $15 billion share buyback program until it could control the losses, Bloomberg reported.

“JPMorgan senior management made a conscious, strategic decision to use the CIO for proprietary trading in pursuit of short-term profits,” the plaintiffs said.

The pension funds claim they suffered losses in their holdings as a result of trades by the chief investment office along with Bruno Iksil, known as “the London Whale.” In July, Ohio’s attorney general announced that three of the state’s largest pension funds would seek lead plaintiff status in the shareholder lawsuit against JPMorgan. Attorney General Mike DeWine, the Ohio Public Employees Retirement System, the School Employees Retirement System of Ohio, and the State Teachers Retirement System of Ohio said at the time that it would sue JPMorgan over losses of $27.5 million that resulted from the bank’s plunging stock value. The state accused JPMorgan of deceiving investors about its trading activity by “describing risky and speculative trading strategies merely as ‘hedges’ and ‘risk management’ devices.”

“The filings allege that pension fund managers acting on behalf of Ohio retirees were given false and misleading information by JPMorgan Chase that hid the true nature of the bank’s risky trades, causing Ohio teachers, school employees, and public employees to lose tens of millions of hard-earned retirement dollars,” said DeWine at the time.