On March 29, 2007, U.S. District Judge Sidney Stein of the Southern District of New York granted JPMorgan Chase’s motion to dismiss with prejudice a securities class action complaint filed on behalf of the bank’s shareholders. Plaintiffs claimed that JPMorgan Chase misstated its financial exposure arising from transactions it had entered into with Enron, which transactions, according to Plaintiffs, were intended to help perpetuate Enron’s fraud. In particular, Plaintiffs alleged that the bank’s involvement in various prepaid forward oil and gas transactions provided Enron with off-the-books structured finance loans, which loans were disguised to look like trades instead of debt.
A consolidated amended class action complaint was originally filed in September of 2002, alleging that JPMorgan Chase and several of its officers violated Sections 10(b), 11, 14(A), 15 and 20(a) of the Securities Exchange Act, along with Rules 14(a)-9 and 10b-5. STB subsequently filed a motion to dismiss on behalf of JPMorgan Chase and the individual defendants named in the complaint. After considering the parties’ submissions, on March 28, 2005, Judge Stein found that the majority of Plaintiffs’ allegations failed to plead scienter with the particularity required to satisfy the heightened pleading standards set out in the 1995 Private Securities Litigation Reform Act (“PSLRA”). Judge Stein did find that Plaintiffs adequately pleaded scienter in connection with JPMorgan Chase’s characterization of the prepay transactions as trading assets rather than loans, but ruled that this distinction by itself was not material to investors. As a result, he ordered that the complaint be dismissed with leave to replead.
A second amended class action complaint was filed on May 13, 2005. STB again filed a motion to dismiss on behalf of JPMorgan Chase and the individual defendants named in the Amended complaint arguing that Plaintiffs additional allegations still failed to state a claim. Judge Stein agreed, dismissing the case with prejudice and holding that Plaintiffs once again failed to plead scienter with respect to all claims except their claim that JPMorgan Chase improperly accounted for the prepay transactions, but that Plaintiffs failed to establish materiality with respect to that claim.
The Simpson Thacher team representing JPMorgan Chase in this matter included Bruce Angiolillo, Tom Rice, George Wang, Ronnell Wilson, Marcia Griffith, and Amanda Hector.