(CN) - JPMorgan Chase's board adequately investigated its executives' actions and alleged misstatements in the London Whale debacle, the Second Circuit ruled.
Bruno Iskil, the former head of Chase's Synthetic Credit Portfolio, earned the "London Whale" nickname when he was blamed for $6.3 billion in losses three years ago, stemming from bad bets on credit default swaps he made for the bank.
The bank paid $920 million to U.S. and U.K. regulators in 2013 for "unsafe and unsound practices" that led to the scandal.
Shareholders, led by Ernesto Espinoza, brought a federal derivative action in Manhattan, seeking to hold JPMorgan's board liable for failing to oversee its traders.
Espinoza challenged the bank's decision not to take any further action against the alleged wrongdoers, contending that the board's investigation into shareholder demands was unreasonably narrow.
In particular, CEO James Dimon was quoted in April 2012 as saying that the media's focus on the losses was a "complete tempest in a teapot." Espinoza said this misstatement deceived investors about the scope of JPMorgan's risk exposure, inflated shares, and exposed JPMorgan to litigation and regulatory liability.
Though U.S. District Judge George Daniels dismissed the complaint, the Second Circuit concluded over the summer that it first needed the Delaware Supreme Court to weigh in before it could review Espinoza's appeal.
The Delaware Supreme Court responded that review of a wrongful-refusal suit begins with the premise that the decision to initiate a lawsuit is an internal corporate matter within the board's discretion.
Under Delaware law, shareholders must show that the board's decision not to take action was so grossly negligence that it "constitutes reckless indifference."
Quoting its own precedent, the Second Circuit said "few, if any, plaintiffs surmount this obstacle."
Espinoza faired no better Thursday, when the appeals court threw out the case.
"JPMorgan's investigation into the entire London Whale incident was exhaustive," Judge Robert Katzmann wrote for the three-judge panel in New York.
In the scandal's wake, the company implemented numerous reform measures, including "many of the changes demanded by Espinoza, including clawbacks, reductions in compensation, and reformed internal guidelines and controls," the court found.
JPMorgan's board was not required to respond to Espinoza's demand letter with a point-by-point response to the issues he raised, the panel added.
"JPMorgan's response, together with the Task Force report, directly contradicts Espinoza's contention that the board was recklessly indifferent to the claims he raised or unreasonable in refusing his demand," Katzmann wrote.
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