Lehman Bankruptcy Estate Sues JP Morgan Over Breach of Trust
The bankruptcy estate of Lehman Brothers has filed suit against JP Morgan Chase in U.S. Bankruptcy court, claiming that “unjustified” demands by JP Morgan for billions in additional collateral and its refusal to return that collateral in the final days before Lehman’s bankruptcy, contributed to its demise, according to an article in CNNMoney.com by David Ellis, “Lehman sues JP Morgan over its collapse.”
The suit alleges that Lehman invited JP Morgan to assist it in securing emergency financing, and that JP Morgan then used information about Lehman's books to protect its interests at the expense of Lehman and other creditors by demanding as much as $8.6 billion in cash collateral. In short, Lehman’s estate claims that JP Morgan misused Lehman proprietary information to the detriment of Lehman but to the advantage of JP Morgan.
"The purpose of these last-minute maneuvers was to leapfrog JPMorgan over other creditors," and the effect was to severely constrain Lehman's liquidity and ability to work out alternatives to bankruptcy, according to Lehman.
Lehman became one of the biggest bankruptcies in corporate history on Sept. 15, 2008.
A spokesperson for JP Morgan Chase called Wednesday's lawsuit "meritless" adding that it planned to "vigorously defend itself."
In contrast to the allegations in Lehman’s complaint, the bankruptcy examiner’s report found that Lehman executives as well as the auditor who oversaw the company's books were at fault. Lehman "repeatedly exceeded its own internal risk limits and controls," examiner Anton Valukas was quoted as saying.
The lawsuit seeks the return of the cash collateral to the Lehman bankruptcy estate and the restoration all Lehman creditors to the position they would have occupied but for JP Morgan's allegedly wrongful conduct.
