November 11, 2014
A whistleblower lawsuit against JPMorgan Chase & Co was revived in early October by the US Court of Appeals for the Second Circuit. The court vacated and remanded a lower court’s ruling that essentially dismissed the lawsuit, which had been filed by one of JPMorgan Chase’s former employees. Jennifer Sharkey, once a vice president at the company, alleged the company ignored major signs of fraudulent consumer practices in violation of the law. The original lawsuit was filed in October 2009.
Sharkey originally filed a complaint with the Occupational Safety and Health Administration (OSHA) that was dismissed because she failed to show “… complaints definitively and specifically related to one of the six enumerated categories of misconduct identified in Section 806” of the Sarbanes-Oxley Act of 2002.
Sharkey was fired in August 2009, which she claims was in retaliation for speaking out. After OSHA dismissed her complaint, she later filed a lawsuit against JPMorgan Chase, which was later dismissed by US District Judge Robert Sweet. Like OHSA, the judge believed she had failed to show her complaints related to a violation of Sarbanes-Oxley.
The appeals court revived the suit following its ruling in a similar case. Nielsen vs. AECOM Tech. Corp. established that plaintiffs merely must show reasonable belief “… their complaints constitute a violation of enumerated federal provisions.” The court stated Judge Sweet set the bar too high and used too lenient an interpretation of Sarbanes-Oxley, requesting the ruling be reconsidered in light of the “reasonable belief” standard.
JPMorgan’s History with Litigation
This latest revival of this case is another instance in a long line of lawsuits against JPMorgan Chase. In March 2014, a fraud oversight conviction was overturned by an Italian appeals court. The month before, JPMorgan Chase paid the US government more than $6 million and made changes to its mortgage lending practices.
The lawsuits alleged the company approved thousands of unqualified mortgage loans for government insurance. The practices had been ongoing since 2002 and reportedly cost the US government millions of dollars when the loans went into default.
In November 2013, JPMorgan Chase paid a $13 billion settlement to resolve federal and state claims the company participated in risky mortgage practices. Many believe the liberal mortgage policies used by JPMorgan Chase and other banks led to the country’s housing and financial crisis that continues in part today.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act was enacted in 2002 in an effort to improve financial practices and corporate oversight. The act was intended to protect investors from fraudulent accounting activities by corporations and mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.
The act came in response to the accounting scandals that occurred in the early 2000s, including cases involving Enron and WorldCom. The goal was to restore investor confidence and create a major overhaul of existing standards.
According to Sharkey’s original allegations, personnel from her company’s Compliance and Risk Management department alerted her to suspicious activity by one of her clients. Sharkey attempted to gather additional information on the activities and as a result, believed the suspect client was violating federal securities laws, laundering money, and engaging in mail and bank fraud. She communicated these concerns to three other JPMorgan Chase employees. She also filed her complaint with OSHA and when that was dismissed, filed a lawsuit in federal district court.
The defendants asked the case be dismissed, stating the lawsuit presented new allegations that had not been a part of the original complaint filed with OSHA. They further argued Sharkey’s complaint had to specify exactly which statutes were violated and that to establish employer knowledge her complaint must demonstrate that communications related to specific Sarbanes-Oxley sections being violated. In January 2011, the Southern District of New York held the Sarbanes-Oxley Act protects not only whistleblowers who report illegal conduct of their employers, but also those who report clients.
