London Whale Headache Not Over for JPMorgan as Judge Allows Lawsuit

US banking major JPMorgan Chase & Co failed in its attempt to avoid a shareholders lawsuit over the multi-billion-dollar losses due to the involvement in the London Whale scandal.

US District Judge George Daniels in Manhattan ruled that shareholders in the company could pursue claims against JPMorgan, CEO Jamie Dimon and former CFO Douglas Braunstein over the $6.2bn (€4.5bn, £3.7bn) loss trades made by Bruno Iksil, the so-called London Whale.

They are accused of misleading shareholders about its investment division's ability to manage risk.

The judge, however, dismissed related claims against three other JPMorgan officials. He also dismissed a lawsuit brought against JPMorgan directors, and a lawsuit by employees, who suffered losses from investing in the bank's shares.

In May 2012, Iksil and his colleagues at the London unit of JPM's Chief Investment Office (CIO) lost $6.2bn through bad bets in a portfolio that was specifically designed to hedge the bank's risk exposure.

This prompted an investigation by several US authorities and the bank's CEO Jamie Dimon was hauled in front of the US senate to explain what happened.

JPMorgan had to also restate its 2012 first-quarter earnings to reflect the huge losses. It had originally revealed only $2bn in write-downs from the scandal.

Ex-JPMorgan trader Javier Martin-Artajo, who led the London team, and his junior colleague Julien Grout, who was tasked with recording and distributing daily values on the team's positions, were charged with four counts, including wire fraud, falsifying books and records, making false filings with a US regulator, and conspiracy.

Iksil was not charged by prosecutors because the trades were legal.

Regulators have already slapped JPMorgan with $1bn in fines over the London Whale scandal because of the bank's weak compliance and risk controls.

Scandals and Impact on Earnings

JPMorgan has bit hit by a number of scandals since the financial crisis.

JPMorgan profits took a hit in 2013 after it stumped up billions of dollars in fines and settlements related to its role as banker to convicted fraudster Bernie Madoff, its failure to prevent the London Whale losses, and for the sale of toxic mortgage-backed securities.

Net income for the year was $17.9bn, down 17% on $21.3bn in 2012.