In their latest lawsuit questioning firms’ “cash sweeps” policies, plaintiffs’ lawyers have come around to JPMorgan.
A legal team that has already sued Wells Fargo, LPL Financial and Ameriprise filed a putative class-action suit against JPMorgan in federal court in New York on Friday alleging it doesn’t look out for its clients’ best interests with its handling of their uninvested cash. All of the suits so far from the firms Berger Montague of Philadelphia and Rosca Scarlato of Beachwood, Ohio, generally level the same accusation at large wealth managers: They use uninvested cash held in advisory and brokerage accounts to boost their bottom lines rather than secure strong returns for their clients.
The new suit against JPMorgan contends the megabank takes “for itself and its affiliates the vast majority of the compensation earned from its customers’ cash at the expense of its customers and principals, who receive only a minimal return on their cash deposits.”
A JPMorgan spokesperson declined to comment.
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Like most of the firms hit with sweeps lawsuits, JPMorgan moves uninvested cash clients have in their accounts over to an affiliated bank — JPMorgan Chase Bank in this case. The ostensible reason for doing this, according to the suit, is to have the money protected by the Federal Deposit Insurance Corp., which guarantees as much as $250,000 in individual accounts.
But JPMorgan is actually acting as a “double agent,” the suit alleges. The sweeps policy is really set up to benefit the firm and its affiliated bank more than its clients. What’s more, according to the suit, JPMorgan doesn’t adequately disclose how much of its sweeps returns are used to boost its bottom line instead of being distributed to customers.
The suit alleges JPMorgan has breached its fiduciary duty to do what’s best for its clients, committed gross negligence and violated New York laws prohibiting deceptive acts and practices, among other things.
Like all the other cash sweeps suits, the new one against JPMorgan was filed on behalf of a single named plaintiff — an Illinois resident named Dan Bodea. But the firms pressing the case are seeking class-action status to represent other former JPMorgan clients allegedly harmed in the same way.
A separate legal team — consisting of lawyers from Simmons Hanly Conroy of San Francisco, Williams Dirks Dameron of Kansas City and Oakes & Fosher of St. Louis — is seeking class-action status in cash sweeps-related suits filed against Morgan Stanley, UBS, LPL, Wells Fargo and Ameriprise. And yet another firm, Gibbs Law Group in Oakland, California, is pursuing much the same strategy in the third sweeps-related suit filed so far against Wells Fargo.
