Court Relieves JP Morgan of Stock Drop Claims

A lawsuit brought by participants in JP Morgan’s 401(k) plan alleging imprudence in keeping company stock in the plan was dismissed under the new Supreme Court standard.

While public pension funds have received compensation for JP Morgan’s alleged “London Whale” trading scandal misconduct, participants in its own 401(k) plan did not fare so well. 

The case, which had previously been dismissed for plaintiffs’ failure to overcome the Moench presumption of prudence for employee stock ownership plan fiduciaries, was sent back to the U.S. District Court for the Southern District of New York by the 2nd Circuit to determine the effect of a Supreme Court decision in Fifth Third Bancorp v. Dudenhoeffer

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After first finding that the defendants, JP Morgan Chase Bank and JP Morgan, were not named fiduciaries to the plan and that plaintiffs had not put forth sufficient evidence to prove they were de facto fiduciaries, U.S. District Judge George B. Daniels nevertheless went on to determine whether the plaintiffs had proved an imprudence claim under the new Dudenhoeffer standard. Under that standard, he noted that plaintiffs must satisfy two requirements to state a claim for breach of the duty of prudence on the basis of inside information. First, they must “plausibly allege an alternative action that the [D]efendant[s] could have taken that would have been consistent with the securities laws,” and second, they must plausibly allege “that a prudent fiduciary in the same circumstances [as Defendants] would not have viewed [the alternative action] as more likely to harm the fund than to help it.” 

The plaintiffs proposed two alternative actions that the defendants could have taken: plan fiduciaries could have stopped new purchases of the JP Morgan company stock fund by plan participants, and they could have disclosed JP Morgan’s purported misconduct to plan participants. According to the opinion, both the plaintiffs and the defendants agreed that the proposed alternative actions would both have required defendants to make public disclosures about JP Morgan’s purported misconduct. 

This led Daniels to consider Dudenhoeffer’s second prong that requires plaintiffs to plausibly allege “that a prudent fiduciary in the same circumstances [as Defendants] would not have viewed [the alternative actions] as more likely to harm the fund than to help it.” He found that plaintiffs failed to plausibly allege that a prudent fiduciary in defendants’ circumstances would not have viewed making public disclosures of JP Morgan’s purported misconduct as more likely to harm than help the company’s stock price and therefore, the 401(k)’s company stock fund, so they failed to state a claim for breach of the Employee Retirement Income Security Act’s (ERISA’s) duty of prudence. 

Daniels dismissed the case. His opinion may be viewed here.

Smartphone Fever Seems to Be Cooling

Huge growth in the smartphone market appears to be over.

Only 48% of consumers plan to purchase a smartphone in the next 12 months, according to the 2016 Accenture Digital Consumer Survey for communications, media and technology companies.

The largest drops in purchase intent are in countries that previously experienced rapid growth in smartphone purchases, including China, India and South Korea. In the U.S. and U.K., consumers’ love affair with the latest and greatest appears to be over, with just 38% of consumers intending to make new purchases.  

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One reason for the flattening of demand is that nearly half of consumers not planning to buy a smartphone say they are happy with their current device. Another 26% say they recently purchased a new smartphone, and 4% point to a lack of innovative features in new devices that interest them.

Another reason: Consumers report that price is the top barrier to the purchase of Internet of Things (IoT, or highly interconnected devices), with 62% believing these devices are too expensive. Russia, Romania and the Philippines report the highest share of consumers stating price as a barrier.

Security has moved from being a nagging problem to a top barrier as consumers are now choosing to abandon IoT devices and services over security concerns. More than two-thirds of the consumers surveyed are aware of the recent security breaches such as hacker attacks resulting in stolen data or malfunction.

Out of the consumers aware of hacker attacks and owning or planning to own IoT devices in the next five years, 18% decided to terminate the use of the devices and related services until they get safety guarantees. An additional 24% decided to postpone purchase of an IoT device or service subscription they were planning due to concerns over security.

Among other findings:

  • Four out of five online consumers own a smartphone, a huge increase of market penetration over the last five years. Globally, only Japan, Slovakia and Turkey have less than 70% smartphone ownership.
  • The survey also revealed a 9-point drop in purchase intent for tablets, an 8-point drop in televisions and a 6-point drop for laptop computers. Overall, a fifth of consumers surveyed plan to decrease spending; only 13% plan to increase spending on smartphones, tablets and laptops.

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