Supreme Court of The State of New York County of New York: Defendal Ts

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SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK


LOUISIANA MUNICIPAL POLICE
EMPLOYEES RETIREMENT SYSTEM,
Derivatively on Behalf of JPMORGAN CHASE
&CO.,
Plaintiff,
vs.
Index No.:
SUMMONS
JAMES DIMON, JAMES S. CROWN,
\VILLIAM H. GRAY III, LABAN P.
JACKSON, JR., CRANDALL C. BO\VLES,
LEE R. RA YMOND, ELLEN V. FUTTER,
DAVID C. NOVAK, WILLIAM C.
WELDON, STEPHEN B. BURKE, and
DAVID M. COTE,
-and-
Defendants.
JPMORGAN CHASE & CO., a Delaware
corporation,
Nominal
TO THE ABOVE NAMED
YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy
of your answer, or, if the complaint is not served with this summons, to serve a notice of
appearance, on the Plaintiff's Attorneys within 20 days after service of this summons, exclusive
of the day of service (or within 30 days after the service is complete if this summons is not
personally delivered to you within the State of New York); and in case of your failure to appear
or answer, judgment will be taken against you by default for the relief demanded in the
complaint.
FILED: NEW YORK COUNTY CLERK 11/07/2011
INDEX NO. 653083/2011
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 11/07/2011
Dated: New York, New York
November 4,2011
/
II
GROSSI}'fr\N & GROS
By: ij-
Marc. Goss
Jas n S!Cowart
hYt. Oliver
,rPark Avenue - 26th Floor
ew York, New York 10017
Telephone: 212-661-1100
Facsimile: 212-661-8665
migross@pomlaw.com
jalieberman@pomlaw.com
Patrick V. Dahlstrom
POMERANTZ HAUDEK
GROSSMAN & GROSS LLP
Ten South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
Attorneysfor Plaintiff
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Defendants' Addresses:
JPMorgan Chase & Co.
270 Park Avenue
New York, NY 10017
James Dimon
25 EBanks St
Chicago, IL 60610-2116
James S. Cro"INTI
65 E Goethe St Apt 6N
Chicago, IL 60610-7260
William H. Gray, III
18581 Nalle Rd
North Fort Myers, FL 33917-5226
Laban P. Jackson, Jr.
2665 N Ocean Blvd
Delray Beach, FL 33483-7365
Crandall C. Bowles
6725 Old Providence Rd
Charlotte, NC 28226-7735
Lee R. Raymond
4642 Meadowood Rd Apt 225
Dallas, TX 75220-2015
Ellen V. Futter
79 E 79th St # 2
New York, NY 10075-0202
David C. Novak
13006 Osage Rd
Louisville, KY 40223-1557
William C. Weldon
515 Waterview PI
New Hope, PA 18938-2257
Stephen B. Burke
1817 Delancey St
Philadelphia, PA 19103-6606
3
David M. Cote
101 Columbia Rd # AB-2
Morristown, NJ 07960-4640
4
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
LOUISIANA MUNlCIP AL POLICE
EMPLOYEES RETIREMENT SYSTEM,
Derivatively on Behalf of JPMORGAN CHASE
& CO.,
Plaintiff,
vs.
JAMES DIMON, JAMES S. CROVlN,
WILLIAM H. GRAY III, LABAN P.
JACKSON, JR., CRANDALL C. BOWLES,
LEE R. RAYMOND, ELLEN V. FUTTER,
DAVID C. NOVAK, WILLIAM C.
WELDON, STEPHEN B. BURKE, and
DAVID M. COTE,
Defendants.
-and-
JPMORGAN CHASE & CO., a Delaware
corporation,
Nominal
Index No.
VERIFIED SHAREHOLDER
DERIVATIVE COMPLAINT
The allegations of the Complaint are based on the knowledge of Plaintiff, as to itself, and
on information and belief, including the investigation of counsel and review of publicly available
information as to all other matters.
OVERVIEW OF ACTION
1, This is a derivative action for breach of fiduciary duty and unjust enrichment
brought by Plaintiff, Louisiana Municipal Police Employees Retirement System ("Plaintiff'), a
shareholder in JPMorgan Chase & Co. ("JPMC" or "JPMorgan" or the "Company"), against the
current directors of JPMC who knowingly allowed and rewarded the Company's violations of
the U.S. Department of Treasury's Multiple Sanctions Programs between December 15, 2005
and March 1,2011 (the "Relevant Period").
2. Specifically, on August 25, 2011, JPMC settled with the U.S. Department of
Treasury's the Office of Foreign Assets Control (the "OF AC") for $88.3 million for violations of
the Cuban Assets Control Regulations ("CACR'1 31 C.F.R. part 515; the Weapons of Mass
Destruction Proliferators Sanctions Regulations ("WMDPSR"), 31 C.F.R. part 544; Executive
Order 13382, "Blocking Property of Weapons of Mass Destruction Proliferators and Their
Supporters" ("Executive Order 13382"); the Global Terrorism Sanctions Regulations ("GTSR"),
31 C.F.R. part 594; the Iranian Transactions Regulations ("ITR"), 31 C.F .R. part 560; the
Sudanese Sanctions Regulations ("SSR"), 31 C.F.R. part 538; the Former Liberian Regime of
Charles Taylor Sanctions Regulations ("FLRCTSR"), 31 C.F.R. part 593; and the Reporting,
Procedures and Penalties Regulations ("RPPR"), 31 C.F.R. part 501, that occurred between
December 15, 2005, and March 1,2011 (the "Relevant Period").
3. The misconduct occurred, unchecked, under the Defendants' watch because of
their complicity in the improprieties alleged herein. Because of its acquiescence in the schemes,
JPMC's Board cannot be disinterested and independent. Accordingly, Plaintiff brings this action
on behalf of the Company to, among other things, recover damages caused by the Individual
Defendants' unlawful course of conduct and breaches of fiduciary duty. These damages
2
include, among other things; the costs to the Company associated with the settlement, remedial
measures, damage to goodwill and increased regulatory scrutiny.
JURISDICTION AND VENUE
4. This Court may properly exercise personal jurisdiction over Defendants pursuant
to CPLR 301 and 302(a) because: (a) JPMC principally operates v.rithin the State of New
York, and maintains its principal executive offices at 270 Park Avenue, New York, NY 10017;
and (b) the Individual Defendants are residents of the State of New York and/or work in New
York and/or have intentionally directed business conduct into and otherwise established
minimum contacts with the State of New York.
5. Venue is proper in New York County pursuant to CPLR 503 because, among
other things: (1) a substantial portion of the transaction and wrongs complained of, including
defendants' primary participation in the wrongful acts, occurred in this County; (ii) two or more
of the Defendants either reside in or maintain executive offices in this County; (iii) Defendants
have received substantial compensation in the County by engaging in numerous activities and
conducting business, which had an effect in this County.
PARTIES
6. Plaintiff Louisiana Municipal Police Employees Retirement System is a
shareholder of JPMorgan and has held JPMorgan shares during the Relevant Period. Plaintiff is
a citizen of Louisiana.
7. Nominal Defendant JPMorgan is a Delaware corporation and maintains its
principal executive offices at 270 Park Avenue, New York, NY 10017. JPMorgan provides
global financial services and retail banking. The Company provides such as investment banking,
treasury and security services, asset management, private banking, card member services,
3
commercial banking, and home finance. JPMorgan serves business enterprises, institutions, and
individuals. The Company's shares are traded on New York Stock Exchange ("NYSE") under
the symbol "JPM."
8. Defendant James Dimon ("Dimon") became Chairman of the Board of Directors
("Board") on December 31, 2006, and has been Chief Executive Officer and President since
December 31, 2005. Defendant Dimon is a citizen of Illinois.
9. Defendant James S. Crown ("Crown") has served as a member of the Board since
2004. Defendant Crown is a citizen of Illinois.
10. Defendant William H. Gray ("Gray") has served as a member of the Board since
2001. Defendant Gray is a citizen of Florida.
11. Defendant Laban P. Jackson, Jr. ("Jackson") has served as a member of the
Company's Board since 2004. Defendant Jackson is a citizen of Florida.
12. Defendant Crandall C. Bowles ("Bowles") has served as a member of the
Company's Board since 2006. Defendant Bowles is a citizen ofNorth Carolina.
13. Defendant Lee R. Raymond ("Raymond") has served as a member of the
Company's Board since 2001. Defendant Raymond is a citizen of Texas.
14. Defendant Ellen V. Futter ("Futter") has served as a member of the Company's
Board since 2001. Defendant Futter is a citizen ofNew York.
15. Defendant David C. Novak ("Novak") has served as a member of the Company's
Board since 2004. Defendant Novak is a citizen of Kentucky.
16. Defendant William C. Weldon ("Weldon") has served as a member of the
Company's Board since 2005. Defendant Weldon is a citizen of Pennsylvania.
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17. Defendant Stephen B. Burke ("Burke") has served as a member of the Company's
Board since 2004. Defendant Burke is a citizen of Pennsylvania.
18. Defendant David M. Cote ("Cote") has served as a member of the Company's
Board since 2007. Defendant Cote is a citizen of New Jersey.
19. The Defendants referenced above are referred to herein as the "Individual
Defendants" or "Director Defendants."
SUBSTANTIVE ALLEGATIONS
20. On August 25, 2011, the OFAC issued a press release announcing a settlement
with JPMorgan where the Company agreed to remit $88.3 million "to settle potential civil
liability for apparent violations" of CACR; WMDPSR; Executive Order 13382; GTSR; ITR;
SSR; FLRCTSR; and RPPR. The press release stated the following, in relevant part:
JPMorgan Chase Bank, N.A, New York, NY C'JPMC") has agreed to remit
$88,300,000 to settle potential civi1liability for apparent violations of: the Cuban
Assets Control Regulations ("CACR"), 31 C.F.R. part 515; the Weapons of Mass
Destruction Proliferators Sanctions Regulations ("WMDPSR"), 31 C.F.R. part
544; Executive Order 13382, "Blocking Property of Weapons of Mass
Destruction Proliferators and Their Supporters;" the Global Terrorism Sanctions
Regulations ("GTSR"), 31 C.F.R. part 594; the Iranian Transactions Regulations
("ITR"), 31 C.F.R. part 560; the Sudanese Sanctions Regulations ("SSR"), 31
C.F.R. part 538; the Former Liberian Regime of Charles Taylor Sanctions
Regulations (ttFLRCTSR"), 31 C.F.R. part 593; and the Reporting, Procedures,
and Penalties Regulations ("RPPR
II
), 31 C.F.R. part 501, that occurred between
December 15,2005, and March 1, 2011.
This settlement covers the following apparent violations of the CACR,
WMDPSR, and RPPR, which OF AC has determined were egregious:
JPMC processed 1,711 wire transfers totaling approximately $178.5 million
between December 12, 2005, and March 31, 2006, involving Cuban persons in
apparent violation of the CACR. In November 2005, another U.S. financial
institution alerted JPMC that JPMC might be processing v.rire transfers involving
a Cuban national through one of its correspondent accounts. After such
notification, JPMC conducted an investigation into the wire transfers it had
processed through the correspondent account. The results of this investigation
were reported to JPMC management and supervisory personnel, confirming that
tra.llsfers of funds in which Cuba or a Cuban national had an interest were being
made through the correspondent account at JPMC. Nevertheless, the bank failed
5
to take adequate steps to prevent further transfers. JPMC did not voluntarily self
disclose these apparent violations of the CACR to OF AC. As a result of these
apparent violations, considerable economic benefit was conferred to sanctioned
persons. The base penalty for this set of apparent violations was $111,215,000.
On December 22, 2009, in apparent violation of the WMDPSR, JPMC made a
trade loan valued at approximately $2.9 million to the bank issuer of a letter of
credit in which the underlying transaction involved a vessel that had been
identified as blocked pursuant to the WMDPSR due to its affiliation with the
Islamic Republic of Iran Shipping Lines ("IRISL"). Although JPMC supervisors
and managers determined that this trade loan was likely an apparent violation of
the WMDPSR and, in late December 2009, decided to submit a voluntary self
disclosure to OF AC, JPMC did not mail its voluntary self-disclosure until March
2010, three days prior to the date on which JPMC received repayment for the loan
without OF AC guidance or authorization. JPMC also failed to respond promptly
and completely to an OF AC administrative subpoena seeking information on this
transaction. OF AC determined that JPMC made a voluntary self-disclosure of
this apparent violation. The base penalty for this apparent violation was
$2,941,838.
The apparent violation of the RPPR occurred between November 8, 2010, and
March 1, 2011. On October 13, 2010, OFAC issued JPMC an administrative
subpoena pursuant to section 501.602 of the RPPR directing JPMC to provide
certain specified documents related to a specific wire transfer referencing
"Khartoum." In response to this subpoena and a subsequent communication,
JPMC compliance management failed to produce several responsive documents in
JPMC's possession, and repeatedly stated that JPMC had no additional responsive
documents. OF AC ultimately provided JPMC with a list of multiple responsive
documents that OFAC had reason to believe were in JPMC's possession based on
communications with a third-party financial institution. This prompted JPMC to
correct its prior statements that the bank possessed no additional responsive
documents and to produce more than 20 responsive documents. JPMC did not
voluntarily self-disclose the apparent violation of the RPPR to OF AC. The base
penalty for this apparent violation was $250,000.
In reaching its determination that the above-referenced apparent violations were
egregious because of reckless acts or omissions by JPMC, OF AC considered all
of the information in its possession related to these apparent violations, as well as
the General Factors Affecting Administrative Action set forth in OF AC's
Economic Sanctions Enforcement Guidelines. OF AC determined that JPMC is a
very large, commercially sophisticated financial institution, and that JPMC
managers and supervisors acted with knowledge of the conduct constituting the
apparent violations and recklessly failed to exercise a minimal degree of caution
or care with respect to JPMC's U.S. sanctions obligations.
This settlement also covers the following apparent violations, which OF AC
determined were not egregious:
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Apparent violations of the ITR, GTSR, SSR, FLRCTSR, WMDPSR, and
Executive Order 13382 arising out of its failure to appropriately block or reject
nine wire transfers between April 27, 2006 and November 28, 2008, which totaled
$609,308. JPMC voluntarily self-disclosed five of these apparent violations to
OFAC.
Apparent violations of the WNIDPSR and SSR in which JPMC advised and
confirmed a $2,707,432 letter of credit on April 24, 2009, in which the underlying
transaction involved a vessel identified by OFAC as blocked due to its affiliation
with IRISL, and a $79,308 letter of credit on January 29, 2008, involving goods
destined for Sudan. JPMC voluntarily self-disclosed these apparent violations to
OFAC.
An apparent violation of the ITR consisting of a May 24, 2006 transfer of 32,000
ounces of gold bullion valued at approximately $20,560,000 to the benefit of a
bank in Iran. JPMC did not voluntarily self-disclose this matter to OFAC.
OFAC mitigated the total potential penalty based on JPMC's substantial
cooperation, including conducting an historical transaction review at OF AC's
request and entering into tolling agreements with OFAC, and the fact that OFAC
had not issued a Penalty Notice or Finding of Violation against JPMC in the five
years preceding the transactions at issue. Mitigation was also extended because
JPMC agreed to settle these apparent violations.
21. The Company issued the following statement as a response to the OFAC:
The civil settlement resolves a number of OFAC allegations dating back to 2005,
none of which involved any intent to violate OFAC regulations. These rare
incidents were unrelated and isolated from each other. The finn screens hundreds
of millions of transaction and customer records per day and annual error rates are
a tiny fraction of a percent. We are pleased to have resolved these matters and to
move forward with enhancements to our global OFAC compliance programs.
DERIVATIVE AND DEMAND FUTILITY AI,LEGATIONS
22. Plaintiff is a current owner of JPMorgan common stock and was an o\"ner of
JPMorgan common stock during the period relevant to the Individual Defendants' wrongful
course of conduct alleged herein.
23. Plaintiff brings this action derivatively to redress injuries suffered, and to be
suffered, by JPMorgan as a direct result of the breaches of fiduciary duty, gross mismanagement,
waste of corporate assets, and unjust enrichment by the Individual Defendants. JPMorgan is
named solely as a nominal defendant.
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24. Plaintiff has not made any demand upon JPMorgan to bring an action on behalf of
lPMorgan asserting claims herein to recover damages for the injuries suffered by JPMorgan,
since such demand would have been a futile, wasteful, and useless act, and is therefore excused,
for the reasons stated herein.
25. The Board currently consists of the follo\Ving eleven individuals: Defendants
Bowles, Burke, Cote, Crown, Dimon, Futter, Gray, Jackson, Novak, Raymond, and Weldon.
26. Demand is futile because the particularized facts pleaded herein create a
reasonable doubt that (1) the directors are disinterested and independent, or (2), that the
challenged decision was the product of a valid exercise of business judgment.
27. Together with all of the Individual Defendants, the present Board embraced or
recklessly disregarded the Company-wide business strategy based upon repeated and systematic
violations of Federal law, safety regulation and Company policy. This strategy was implemented
over an extended period of time through multiple divisions of JPMorgan, was carried out at all
levels of the Company, and was well-known to the Board and throughout the Company. By
pennitting these violations of law to continue for over a prolonged period after being put on
notice numerous times, the Board utterly failed to exercise adequate oversight over JPMorgan, and
thus face a substantial likelihood of liability for much of the conduct complained of herein.
28. Defendant Dimon was a key executive at the Company during the Relevant
Period. Demand is excused against Defendant Dimon because he knowingly authorized or
recklessly disregarded such open and notorious unlawful policies and practices. Moreover,
Defendant Dimon was grossly negligently in putting effective control systems in place. Further, as
the top level executive at JPMorgan, Defendant Dimon necessarily played an active role in approving
8
the illegal transactions and transfers. Accordingly, Defendant Dimon breached his fiduciary duties of
care and loyalty, and therefore, cannot impartially consider a demand.
29. Further, by their VvTongful acts, the Individual Defendants were unjustly enriched at
the expense of and to the detriment of JPMorgan. The Individual Defendants received
compensation and/or director remuneration at the same time in which they were breaching their
fiduciary duties owed to the Company. Any suit by the current directors of JPMorgan to remedy
the wrongs complained of herein would expose the defendants themselves and their friends and
business allies to significant personal liability for their breaches of fiduciary duties and other
misconduct.
30. Further, the unlawful acts and practices alleged herein cannot be defended by the
Individual Defendants and are not subject to the protection of any independent business
judgment as they were unlawful or improper and in turn, ultra vires. This action does not arise
from a single incident, but mUltiple schemes spanning years that were common knowledge
throughout the Company. Serious violations of applicable law and regulations occurred
systematically throughout the Company as a direct result of the Board's decision to embrace a
policy of calculated legal violations as the Company's deliberate business strategy. There is no
legitimate "business judgment" involved in devising or carrying out such an unlawful policy.
The JPMorgan Board approved of or willfully disregarded the improper business strategy
described herein. The approval of action by the Company that violates applicable law can never
be protected by the business judgment rule. Nor can such malfeasance ever constitute the "good
faith" required of corporate fiduciaries. Accordingly, demand on the Board is excused.
31. Demand is excused because this action challenges decisions by the Board that are
not protected by the business judgment rule. As stated by the OF AC, the "violations were
9
egregious because of reckless acts or omissions by JPMC." Moreover, "OF AC determined that
JPMC is a very large, commercially sophisticated financial institution, and that JPMC managers
and supervisors acted with knowledge of the conduct constituting the apparent violations and
recklessly failed to exercise a minimal degree of caution or care with respect to JPMC's U.S.
sanction obligations. Yet despite being fully apprised of these facts, as evidenced by
JPMorgan's public acknowledgments of the violations, the Board chose not to take appropriate
action to stamp out the illegal activity. Accordingly, demand is futile.
32. Demand is excused because all of the members of the Board are interested in the
decision to investigate and prosecute claims relating to the Company's violations of the CACR;
WMDPSR; Executive Order 13382; GTSR; ITR; SSR; FLRCTSR; and RPPR. All of the
members of the Board served for at least part of the relevant period when the Board was aware of
the violations at the Company, but chose to allow those activities to continue. Because the Board
knew that JPMorgan employees were allowing illegal violations including wire transfers to
continue. Because the entire Board is interested in this decision, demand is futile.
33. Demand is excused because all of the members of JPMorgan's Board face a
substantial likelihood of liability from Plaintiff s claims and so are interested in the decision to
assert them. All of the members of JPMorgan's Board served for at least part of the relevant
period when the Board chose to allow JPMorgan employees to engage in the violations and
recklessly disregarded manifest red flags that JPMorgan lacked adequate internal controls and
was engaged in illegal activities. These allegations demonstrate that the Board breached its
fiduciary duties of loyalty and good faith. As a result, all of the members of the Board are
interested in the decision to prosecute the claims asserted by Plaintiff and demand is futile.
10
34. Demand is also excused because the wrongs alleged herein constitute violations
of the Company'sintemal policies and charters and cannot be considered a valid exercise of
business judgment.
35. The Individual Defendants' wrongful conduct was continuous and occurred both
before and throughout the Relevant Period. It resulted in ongoing and continuous harm to the
Company. The Individual Defendants participated in andlor failed to adequately address, correct
andlor disclose such conduct.
36. Demand is further excused because the Individual Defendants participated in,
approved, ratified or permitted the illegal conduct described herein, and they cannot be expected
to prosecute claims against themselves andlor persons or entities with which they have extensive
inter.;.related business and professional and personal entanglements, including the other
Individual Defendants, if Plaintiff demanded that they do so. The Individual Defendants cannot
be expected to make a disinterested or independent decision with respect to a shareholder
demand.
37. Moreover, the acts complained of constitute violations of the fiduciary duties
owed by JPMorgan's officers and directors and these acts are incapable of ratification.
38. Despite the Individual Defendants having knowledge of the claims and causes of
action raised by plaintiff, the current Board has failed and refused to seek to recover for JPMorgan
for any ofthe wrongdoing alleged by plaintiff herein.
39. Any suit by the current directors of JPMorgan to remedy these wrongs would likely
expose the Individual Defendants and JPMorgan to further violations of federal laws that would
result in civil actions being filed against one or more of the Individual Defendants, thus, they are
11
hopelessly conflicted in making any supposedly independent determination whether to sue
themselves.
40. JPMorgan has been and will continue to be exposed to significant losses due to the
wrongdoing complained of herein, yet the Individual Defendants and current Board have not
filed any lawsuits against themselves or others who were responsible for that wrongful conduct to
attempt to recover for JPMorgan any part of the damages JPMorgan suffered and will suffer
thereby.
41. If the Company's officers and directors are protected against personal liability for
their acts of mismanagement and breach of fiduciary duty alleged in this complaint by directors'
and officers' liability insurance, they caused the Company to purchase that insurance for their
protection with corporate flmds, i.e., monies belonging to the stockholders of JPMorgan. However,
the directors' and officers' liability insurance policies covering the defendants in this case
contain provisions that eliminate coverage for any action brought directly by JPMorgan against
these defendants, knovvn as the "insured versus insured exclusion." As a result, if these directors
were to cause JPMorgan to sue them or certain of the officers of JPMorgan, there would be no
directors' and officers' insurance protection and thus, this is a further reason why they will not
bring such a suit. On the other hand, if the suit is brought derivatively, as this action is brought,
such insurance coverage exists and will provide a basis for the Company to effectuate recovery.
If there is no directors' and officers' liability insurance, then the current directors will not cause
JPMorgan to sue the defendants named herein, since they will face a large uninsured liability and
lose the ability to recover for the Company from the insurance.
42. The Company has been directly and substantially injured by reason of the
Individual Defendants' intentional breach andlor reckless disregard of their fiduciary duties
12
including the $88.3 million settlement by JPMorgan to the OF AC and money that JPMorgan is
entitled to recover from its disloyal Board. Plaintiff, as a shareholder of the Company, seeks
damages and other relief onbehalf of JPMorgan, in amount to be proven at trial.
DUTIES OF THE INDIVIDUAL DEFENDANTS
43. Because of their positions as officers and/or directors of JPMorgan during the
Relevant Period and their ability to control the business and corporate affairs of the Company,
the Individual Defendants owed JPMorgan and its shareholders fiduciary obligations of good
faith, loyalty, and candor, and were and are required to use their utmost ability to control and
manage the Company in a fair, just, honest, and equitable manner. The Individual Defendants
were and are required to act in furtherance of the best interests of JPMorgan and its shareholders
so as to benefit all shareholders equally and not in furtherance of their personal interest or benefit.
Each director and/or officer of the Company owes to JPMorgan and its shareholders the fiduciary
duty to exercise good faith and diligence in the administration of the affairs of the Company and in
the use and preservation of its property and assets, and the highest obligations of fair dealing.
44. The Individual Defendants, because of their positions of control and authority as
directors and/or officers of JPMorgan, were able to and did, directly and/or indirectly, exercise
control over the wrongful acts complained of herein, as well as the contents of the various public
statements issued by the Company. Due to their positions with JPMorgan, each of the Individual
Defendants had knowledge of material non-public information regarding JPMorgan.
45. To discharge their duties, the Individual Defendants were required to exercise
reasonable and prudent supervision over the management, policies, practices and controls of the
Company. By virtue of such duties, the officers and directors of JPMorgan were required to,
among other things:
a, Exercise good faith to ensure that the affairs of the Company were
13
conducted in an efficient, business-like manner so as to make it possible to provide the highest
quality performance of their business;
b. Exercise good faith to ensure that the Company was operated in a diligent,
honest and prudent manner and complied with all applicable federal and state laws, rules,
regulations and requirements, and all contractual obligations, including acting only within the
scope of its legal authority; and
c. When put on notice of problems with the Company's business
practices and operations, exercise good faith in taking appropriate action to correct the
misconduct and prevent its recurrence.
46. Under the Company's Code of Conduct ("Code"), each member of the Board and
JPMorgan's employees "are expected to conduct the firm's business ethically and in full
compliance with both the letter and the spirit of laws and regulations, the Code, and any other
policies and procedures that may be applicable to you." The Code emphasizes the following, in
relevant part:
Anti-money laundering and sanctions
JPMorgan Chase has established policies, procedures and internal controls
designed to assure compliance with laws and regulations regarding money
laundering and terrorist financing, including relevant provisions of the Bank
Secrecy Act (as amended by the USA PATRIOT Act) and economic sanctions
imposed by the U.S. Office of Foreign Assets Control, and similar laws and
regulations in other countries. You should be familiar with, and comply with,
these policies, procedures and controls. You should also understand your
obligations to:
(a) know your customers and your customers' use of the firm's products and
servIces.
(b) get proper training if you are identified as being in a job that requires a higher
degree of knowledge of anti-money laundering, counter-terrorist financing, and
sanctions rules.
14
(c) be alert to and report unusual or suspicious activity to the designated persons
within your line of business or region, including your Compliance Officer or Risk
Manager responsible for anti-money laundering and sanctions compliance.
47. In addition, the Company's Code of Ethics ("Code of Ethics") applies to the
Company's Chief Executive Officer, President, Chief Financial Officer, and Chief Accounting
Officer and to all other professionals of the firm worldwide serving in a finance, corporate
treasury, and tax or investor relations role. The Code of Ethics provides the following, in
relevant part:
The purpose of this Code of Ethics is to promote honest and ethical conduct and
compliance with the law, particularly as related to the maintenance of the firm's
financial books and records and the preparation of its financial statements. The
obligations of this Code of Ethics supplement, but do not replace, the firm's Code
of Conduct. As a finance professional of the firm, you are expected to:
Engage in and promote ethical conduct, including the ethical handling of
actual or apparent confJicts of interest between personal and professional
relationships, and to disclose to the Office of the Secretary any material
transaction or relationship that reasonably could be expected to give rise to
such a confJict.
Carry out your responsibilities honestly, in good faith and with integrity,
due care and diligence, exercising at all times the best independent
judgment.
Assist in the production of full, fair, accurate, timely and understandable
disclosure in reports and documents that the firm and its subsidiaries file
with, or submit to, the Securities and Exchange Commission and other
regulators and in other public communications made by the firm.
Comply with applicable government laws, rules and regulations of federal,
state and local governments and other appropriate regulatory agencies.
Promptly report (anonymously, if you wish to do so) to the Audit
Committee of the Board of Directors any violation of this Code of Ethics
or any other matters that would compromise the integrity of the finn's
financial statements. You may contact the Audit Committee by mail, by
phone, or bye-mail; contact information is set forth below.
Never to take, directly or indirectly, any action to coerce, manipulate,
mislead or fraudulently influence the firm's independent auditors in the
performance of their audit or review ofthe firm's financial statements.
15
48. Similarly, JPMorgan's Corporate Governance Principles ("CGP") provides that
the "Board directors only) makes an evaluation of the Chairman and the Chief
Executive Officer at least annually." Moreover, the CGP states that the "full Board shall engage
in discussions on strategic issues and ensure that there is sufficient time devoted to director
interchange on these subjects."
49. Moreover, the Company describes certain principles in detail as they "are so
fundamental to" its success. The Company's Business Principles including, among others, the
following:
Maintain a strong system of internal governance and controls
Good internal governance is essential to effective management. It ties together all
our businesses worldwide with a common set of rules, expectations and oversight
activities. These help safeguard our reputation, which we believe is one of our
most important assets, and align the company's performance with the best
interests of our shareholders.
***
Operate with the highest standards of integrity
In business, as in every other arena, ethical behavior does not just happen. It has to be
cultivated and repeatedly affirmed throughout the organization. Maintaining the
highest standards of integrity involves being honest and doing the right thing for
our customers, fellow employees, our shareholders and all our other partners.
50. The Audit Committee of the Board has additional responsibilities concernmg
compliance and regulatory oversight. The Audit Committee charter provides the following in
relevant part:
The Audit Committee shall:
Receive from the General Auditor, periodically, and from management, as
appropriate, communications and presentations on significant operating and
control issues in internal audit reports, management letters, and regulatory
authorities' examination reports, and on the initiation and status of significant
special investigations; and initiate such other inquiries into the affairs of the
corporation as it deems necessary or appropriate.
Receive periodic presentations from management and the independent
registered public accounting firm on the identification and resolution status of
16
material weaknesses and reportable conditions in the internal control
environment, including any significant deficiencies in the design or operation of
internal controls that could adversely affect the corporation's ability to record,
process, summarize and report financial data, and on any fraud, whether or not
material, that involves management or other employees who have a significant
role in the corporation's internal controls.
Receive periodic presentations from the General Auditor on the review,
and related results, of each corporate Executive Committee member's expense
account and perquisites, including their use of corporate assets.
Review with management the corporation's program for compliance with
laws and regulations and review the record of such compliance; and review
significant legal cases outstanding against the corporation or its subsidiaries and
other regulatory or legal matters that may have a material impact on the
corporation's financial statements.
Review the program established by management that monitors compliance
with the Code of Conduct and review the record of such compliance.
Review regulatory authorities' significant examination reports pertaining
to the corporation, its subsidiaries and associated companies.
Receive communications and presentations from management
summarizing the suspicious activity reports filed by subsidiaries with the
appropriate regulatory and law enforcement agencies.
Review management reports issued by the corporation in accordance with
FDICIA and the corresponding independent registered public accounting firm's
attestation and agreed-upon procedures reports.
51. As discussed herein, in addition to violating their fiduciary duties, the Individual
Defendants failed to meet their responsibilities. The Individual Defendants' illegal course of
conduct constituted breaches of their fiduciary duties to JPMorgan and resulted in significant
harm to the Company.
COUNT I
(BREACH OF FIDUCIARY DUTY)
Plaintiff incorporates by reference and re-alleges each of the foregoing allegations
as though fully set forth herein.
53. The Individual Defendants owed a fiduciary duty to JPMorgan to supervise the
issuance of its press releases and public filings and ensure that they were truthful, accurate and
17
conformed to federal and state securities laws. The Individual Defendants breached their fiduciary
duties by failing to properly supervise and monitor the adequacy of JPMorgan' s internal controls and
by allowing misleading statements and fi1ings to be issued.
54. The Individual Defendants have engaged, knowingly or recklessly, in a sustained and
systematic failure to exercise their oversight responsibilities to ensure that JPMorgan complied
with federal and state laws, rules and regulations.
55. As members of the Board, the Individual Defendants were directly responsible
for authorizing or permitting the authorization of, or failing to monitor, the practices which
resulted in violations of the federal and state laws as alleged herein. Each of them had knowledge
of and actively participated in and/or approved of or acquiesced in the wrongdoings alleged herein
or abdicated hislher responsibilities with respect to these wrongdoings. The alleged acts of
wrongdoing have subjected JPMorgan to unreasonable risks ofloss and expenses.
56. Each of the Individual Defendants' acts in causing or permitting the Company to
disseminate to the invl;':sting public material misrepresentations and omissions and abdicating
their oversight responsibilities to the Company has subjected the Company to liability for
violations of federal and state law, and therefore could not be the product of a valid exercise of
business judgment. Instead, this was a complete abdication of their duties as officers andior
directors of the Company. As a result of the Individual Defendants' breaches, JPMorgan has lost
market capitalization and has had its reputation in the business community and financial markets
irreparably tarnished.
57. By reason ofthe foregoing, JPMorgan was significantly damaged.
58. Plaintiff, on behalf of JPMorgan, has no adequate remedy at law.
COIJNTII
18
(UNJUST ENRICHMENT)
59. Plaintiff incorporates by reference and realleges each of the foregoing allegations
as though fully set forth herein.
60. Through the VvTongful course of conduct and actions complained of herein, the
Individual Defendants were unjustly enriched at the expense of, and to the detriment of,
JPMorgan. The wrongful conduct was continuous and resulted in ongoing harm to the Company.
The Individual Defendants were unjustly enriched pursuant to receiving compensation and director
remuneration while breaching their fiduciary duties to the Company.
61. Plaintiff, as a shareholder of JPMorgan, seeks restitution from the Individual
Defendants, and an order of this Court disgorging all profits, benefits, and other
compensation obtained by the Individual Defendants, from their wrongful course of conduct and
fiduciary breaches.
62. By reason of the foregoing, JPMorgan was damaged.
63. Plaintiff, on behalf of JPMorgan, has no adequate remedy at law.
COUNT III
(GROSS MISMANAGEMENT)
64. Plaintiff incorporates by reference and realleges each of the foregoing allegations
as though fully set forth herein.
65. The Individual Defendants had a duty to JPMorgan and its shareholders to
prudently supervise, manage and control the operations, business and internal financial accounting
and disclosure controls of the Company.
66. The Individual Defendants, by their actions and be engaging in the VvTongdoing
described herein, abandoned and abdicated their responsibilities and duties with regard to
prudently managing the business of JPMorgan in a manner consistent with the duties imposed
19
upon them by law. By committing the misconduct alleged herein, the Individual Defendants
breached their duties of due care, diligence, and candor in the management and administration of
JPMorgan's affairs and in the use and preservation of the Company's assets.
67. During the course of the discharge of their duties, the Individual Defendants knew
or recklessly disregarded the unreasonable risks and losses associated with their misconduct, yet
the Individual Defendants caused JPMorgan to engage in the scheme complained of herein, which
they knew had an unreasonable risk of damage to JPMorgan, thus breaching their duties to the
Company. As a result, the Individual Defendants grossly mismanaged JPMorgan.
68. By reason of the foregoing, JPMorgan was damaged.
69. Plaintiff, on behalf of JPMorgan, has no adequate remedy at law.
COUNT IV
(CONTRIBUTION AND INDEMNFICATION)
70. Plaintiff incorporates by reference and realleges each of the foregoing allegations
as though fully set forth herein.
71. JPMorgan is alleged to be liable to various persons, entities and/or classes by
virtue of the same facts or circumstances as are alleged herein that give rise to Defendants'
liability to JPMorgan.
72. JPMorgan's alleged liability on account of the wrongful acts, practices and related
misconduct described above arises, in whole or in part, from the knowing, reckless, disloyal
and/or bad faith acts or omissions of the Individual Defendants as alleged above, and JPMorgan
is entitled to contribution and indemnification from each Individual Defendant in connection with
all such claims that have been, are or may in the future be asserted against, JPMorgan by virtue ofthe
Individual Defendants' misconduct.
73. By reason of the foregoing, lPMorgan was damaged.
20
74. Plaintiff, on behalf of JPMorgan, has no adequate remedy at law.
COUNT V
(WASTE OF CORPORATE ASSETS)
75. Plaintiff incorporates by reference and realleges each of the foregoing allegations
as though fully set forth herein.
76. As a result of the misconduct described above, and by failing to properly consider
the interests of the Company and its public shareholders, Individual Defendants have caused to
incur (and JPMorgan may continue to incur) significant legal liability and/or legal costs to
defend itself as a result of Defendants' unlawful actions.
77. As a result of this waste of corporate assets, Individual Defendants are liable to
the Company.
78. By reason of the foregoing, JPMorgan was damaged.
79. Plaintiff, on behalf of JPMorgan, has no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment as follows:
A. Determining that this action is a proper derivative action maintainable under law
and demand is excused;
B. Awarding, against all Defendants and in favor of JPMorgan, the damages
sustained by the Company as a result of Defendants' breaches of fiduciary duties;
C. Awarding to JPMorgan restitution from Defendants and ordering disgorgement of
all profits, benefits and other compensation obtained by the Defendants;
D. Directing JPMorgan to take all necessary actions to reform and improve its
corporate governance and internal procedures, to comply ~ , r i t h the Company's existing
governance obligations and al1 applicable laws and to protect the Company and its shareholders
21
from a recurrence of the damaging events described herein;
Awarding to Plaintiff the costs and disbursements of the action, including
reasonable attorneys' fees, accountants' and experts' fees, costs, and expenses; and
F. Granting such other and further relief as the Court deems just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
22
Dated: November 4, 2011
POMERANTZ H,Alr
DEK
I '/-----
V
/ t I'
I / ;'
f / /1
By: i -./
Marc 1. Gross i /
Jason S. Cowart 1/
Marie L. Oliver /1
100 Park Aven# - 26th Floor
New York, Ne\v York 10017
Telephone: 212-661-1100
Facsimile: 212-661-8665
migross@pomlaw.com
jalieberman@pomlaw.com
Patrick V. Dahlstrom
POMERANTZ HAUDEK
GROSSMAN & GROSS LLP
Ten South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
Attorneysfor Plaintiff
23
VERIFICATIQr!
(, Randall Roche. hereby dechu'eas fonows:
I am authorized to this verification by the plaintiff herein and that facts and
foregoing Shafeholder Derivative Complaint are
trw;! correct to the of my inf'Ormatioo and belief discussions with and
reliance upon my counsel. Plain.t1ffisa shareholder of JPMorgan Cbase Co. ("JPMorga/C
r
).
\\"'.15 a shareholder at the time wrongdoing complained ofand remain;s a shareholder.
have CCimpetent comlsed :and 1 am ready, willing and able to pursue this
vigorously on behalf of JPMorgan.
1declare under penalty ofpillrjury that the foregoing is true and correct
Louisiana Ml.wicipal Police Employees
Retirement System

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