JPMorgan's Dismissal Plea Rejected - Analyst Blog

As per Reuters , a U.S. District Judge rejected JPMorgan Chase & Co 's ( JPM ) lawsuit dismissal plea. An irate pension-planning firm filed the lawsuit in 2009, accusing the company of mismanagement of funds.

Operating Engineers Pension Trust of Pasadena, Calif. accused JPMorgan of investing its money into Lehman Brothers Holdings Inc.'s notes before that bank went bankrupt in 2008. The financial crisis of 2008 left the bank devastated and the pension trust lost most of its money. The trust also alleged that JPMorgan was trying to lessen its own exposure in Lehman Brothers while trying to rescue the troubled firm at the cost of the pension trust.

In 2005, the pension trust had signed a securities lending agreement with JPMorgan. As per the deal, the trust was supposed to loan securities to the bank. This in turn was to be loaned to the borrowers by the bank against cash/collateral. JPMorgan was supposed to manage the cash/collateral effectively.

However, JPMorgan used up all the money to invest in senior unsecured floating rate Lehman notes, and did not divest them even though it was evident that Lehman was in distress. It is widely speculated that the pension trust lost 85% of the value of its investment when Lehman Brothers collapsed.

In 2011, another judge, who was handling the case, dismissed a previous version of the lawsuit. The judge gave JPMorgan ample relief stating that the company acted wisely with regards to the investment and the pension trust did not substantiate well enough to suggest that the other investment managers would have acted differently.

However, Judge Jones allowed another version of the complaint to be filed, which was taken over by Judge Forrest when the former stepped down from the bench.

In its defense, JPMorgan has stated that it had remained vigilant on the now defunct Lehman Brothers and had sold quite some securities before the bank went insolvent.

However, the issue relating to Lehman Brothers has been haunting JPMorgan ever since. Though this is a relatively smaller lawsuit, there are various other lawsuits pertaining to Lehman Brothers that JPMorgan has faced. In addition, over the past couple of years, it has been flooded with lawsuits alleging legal malfeasance. Earlier this month, Freddie Mac dragged JPMorgan and a dozen other banks including biggies like Bank of America Corporation ( BAC ), UBS AG ( UBS ) and Credit Suisse Group AG ( CS ) to court accusing them of manipulating the London Interbank Offered Rate (LIBOR).

Currently, JPMorgan holds a Zacks Rank #2 (Buy).

BANK OF AMER CP (BAC): Free Stock Analysis Report

CREDIT SUISSE (CS): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

UBS AG (UBS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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