Ohio Pensions Sue JPMorgan Over ‘Whale’ Losses

(July 16, 2012) — Big banks should take one lesson to heart—if you lose their money, public pensions will sue you to get it back.

Ohio’s attorney general announced that three of the state’s largest pension funds will seek lead plaintiff status in the shareholder lawsuit against JPMorgan Chase because of losses stemming from failed bets taken by the bank’s chief investment office.

According to 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 will sue JPMorgan over losses of $27.5 million that resulted from the bank’s plunging stock value. The state is accusing JPMorgan Chase 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.

To date, JPMorgan has lost almost $6 billion due to bets in the credit derivatives market made by the bank’s chief investment office. The trader at the heart of the scandal, Bruno Iksil, was known colloquially as the “London Whale” because of the large size of the investments he made. Designed initially as hedges, the chief investment office’s bets about the direction of the corporate credit market soured when many hedge funds decided to go against them. When the losses emerged in May, CEO Jamie Dimon asked for forgiveness, telling analysts that “this has shaken our company to the core.”

The Ohio public pension funds will join the pension systems of Oregon and Arkansas as well as a Swedish national pension fund in the lawsuit against JPMorgan.

Ohio’s public officials have not tolerated misbehaving banks in the past. In June of 2011, Ohio Treasurer Josh Mandel called for a state investigation into custody banks State Street and BNY Mellon over allegations that the banks had gouged their pension fund clients through the manipulation of foreign currency exchange rates. “I am concerned that the banks may have manipulated foreign currency trade prices in order to maximize the banks’ profit, at the expense of Ohio public servants, businesses and taxpayers,” wrote Mandel.