An Oklahoma judge has ordered J.P. Morgan Chase & Co to pay more than $18 million to a trust for what the judge ruled was an improper recommendation of a complex security that was unsuitable for the trust and ultimately benefited the bank more than its client. In her opinion, Judge Linda Morrissey (District Court, Tulsa County, Oklahoma) found the bank engaged in misconduct and breached its duties of care to in recommending securities known in the industry as “variable prepaid forward contracts.” The result was financial harm to the trust and its beneficiaries. Part of the problem stemmed from the fact the bank charged both trust management fees as wells as transaction fees for purchasing the securities…a practice known as “double dipping” and one frowned upon by courts and securities regulators.
Also, in a somewhat unusual move, the court ordered JPMorgan to pay punitive damages along with the trust’s legal fees…a signal the judge believed the misconduct was wilful; the firm did not act in its client’s best interest and therefore should be punished. The award also sends the message that such conduct in the future will not be tolerated.
Does this signal a growing intolerance of Wall Street greed and disregard for the client or is this an isolated incident with no long term ramification for the street. Time will tell.