Bloomberg News

JPMorgan Claims on Lehman Not ‘Plausible,’ Creditors Say

February 03, 2012

(Updates with JPMorgan request in second paragraph.)

Jan. 23 (Bloomberg) -- Lehman Brothers Holdings Inc. and its creditors faulted JPMorgan Chase & Co. for claiming $700 million from the defunct firm for investment management affiliates, saying the claims weren’t “plausible.”

JPMorgan, whose subsidiaries provide investment services for hundreds of trillions of dollars of accounts, is seeking to recoup the losses suffered by fund affiliates on investments in Lehman. The bank asked a judge to give the funds a claim on some of the $8.6 billion in collateral that Lehman deposited with the bank before it failed, on the basis that they are affiliates of the bank.

Lehman’s creditors committee today joined Lehman in saying that entities receiving investment services from a JPMorgan affiliate are not themselves affiliates, according to a filing in U.S. Bankruptcy Court in Manhattan.

“Absurd results” would follow from the affiliate definition, creditors said. Some JPMorgan affiliates holding more than $80 million of Lehman’s subordinated notes, for instance, filed claims for losses. If they were accorded the same status as the bank, a big lender to Lehman before the 2008 bankruptcy, they would be paid ahead of Lehman’s senior debt holders, they said.

Joseph Evangelisti, a JPMorgan spokesman, declined to comment on the filing.

Valid Claims

The JPMorgan affiliates, ranging from pension trusts to Highbridge funds, lost the money on bonds and other investments with Lehman entities, and have valid claims on the defunct firm based on their affiliate status, the bank said in a December court filing. Lehman said the funds aren’t affiliates, “merely investment vehicles” for JPMorgan clients who bore the losses, and can’t use the collateral to repay themselves.

Separately, New York-based JPMorgan, the biggest U.S. bank, is fighting a lawsuit by Lehman that alleges the lender helped cause its 2008 collapse by demanding the $8.6 billion in collateral. The bank also is defending $6 billion in claims that Lehman objects to and arguing it acted properly in seeking security for loans made during the credit crisis.

JPMorgan sued Lehman back after the $8.6 billion suit, alleging Lehman defrauded its lender into making the loan. Lehman filed the biggest bankruptcy in U.S. history in 2008, listing $613 billion in debt.

The main case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--Editors: Andrew Dunn, Glenn Holdcraft

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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