(CN) – Heirs to the JCPenney fortune are suing JPMorgan Chase Bank, claiming that the investment bank engaged in self-dealing while handling assets to allegedly enrich the bank at the hefty expense of a family trust.
The complaint, filed in the Supreme Court of New York by beneficiaries of the Mary Penney Waggley Irrevocable Trust, alleges JPMorgan over-invested in proprietary products with the goal of generating large fees the bank could pass off and charge the trust, creating what the heirs call “a classic conflict of interest.”
“Under JPMorgan’s failed stewardship, the growth of the Penney Trust has consistently lagged far behind the returns achieved by comparable Penney family endowments,” the complaint states. “The Penney Trust’s underperformance has accumulated into a shortfall of millions of dollars of principal value.”
But the alleged self-dealing was not exclusive to JCPenney, the complaint citing several other examples of clients who were allegedly taken advantage of by JPMorgan.
“Ordinary JPMorgan clients such as a public library in Canton, Illinois and Episcopal churches in Indiana and West Virginia have lost millions of dollars because JPMorgan improperly placed their assets in speculative, unsuitable products,” the complaint states, referencing a Bloomberg report from 2015.
The Penney heirs claim that the prospective Penney Trust lost nine percent of its principal value between 2000 and 2015, and attributes that loss to the “incompetence and self-dealing” of JPMorgan whose principal value grew 58 percent during that time.
“JPMorgan’s practices were improper because of the obvious conflict of interest it created for JPMorgan’s investment advisors and managers,” the complaint alleges. “The concern is that, driven by fees, banks will push their own products over lower-cost options with stronger returns.”
The 51-page complaint also states that JPMorgan persisted in its self-dealing without any disclosure to clients. Clients were only made aware when the alleged misconduct garnered attention from the Securities Exchange Commission.
A former JPMorgan advisor told the New York Times that JPMorgan often engaged in pressuring brokers to sell the bank’s products under threat of being “pushed out,” according to the complaint.
The advisor reported that he was once told on a conference call, “you are not a money manager; you are an asset gatherer,” the complaint alleges. Other former employees corroborate the advisor’s comments to the New York Times, claiming they were terminated for not aggressively pushing JPMorgan’s own products.
The Penney Trust claims JPMorgan failed to disclose JPMorgan’s preference for proprietary investments, unjustly enriching JPMorgan. The Trust seeks compensatory damages and forfeiture of fees for what the heirs call “activities as a faithless servant.”
The Trust is represented by Andrew J. Rossman, Alex Spiro and Nathan Goralnik from Quinn, Emanuel, Urquhart & Sullivan LLP out of New York.