JPMorgan wins second victory in Lehman-linked lawsuit

Fri Apr 20, 2012 5:52pm EDT
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By Jonathan Stempel

(Reuters) - JPMorgan Chase & Co (JPM.N: Quote) on Friday won the dismissal of a pension fund lawsuit accusing it of mishandling its money by investing in notes from its client Lehman Brothers Holdings Inc, which later went bankrupt.

The decision by U.S. District Judge Barbara Jones in Manhattan is JPMorgan's second court victory in a Lehman matter in two days. On Thursday, U.S. Bankruptcy Judge James Peck in Manhattan narrowed Lehman's own $8.6 billion lawsuit against JPMorgan, once its main clearing bank.

In the pension fund case, which sought class-action status, the Operating Engineers Pension Trust of Pasadena, California, said JPMorgan in 2006 bought $446,000 of Lehman notes with collateral it had posted under a securities lending agreement. It said these notes lost 85 percent of their value when Lehman went bankrupt on September 15, 2008.

The fund said JPMorgan should have sold the notes sooner because of "tremendous uncertainty" about Lehman's stability, and had been "uniquely positioned" as a clearing bank to know that Lehman was heading for trouble.

Jones, however, said JPMorgan met the "prudent man" standard set forth by federal pension law, and said the pension fund did not show that other investment managers would have acted differently.

She also rejected the argument, also made by Lehman in its own lawsuit, that JPMorgan took advantage of its close dealings with Lehman to protect itself at Lehman's expense.

"Demanding additional collateral and taking advantage of Lehman's weak negotiating position certainly suggests that JPMorgan harbored some concerns about Lehman's creditworthiness, but is a far cry from the conclusion that JPMorgan knew that maintaining the plan's investments in Lehman was unduly risky," Jones wrote.

Lawyers for the pension fund did not immediately respond to a request for comment.   Continued...

A flag hangs on the wall of the JP Morgan company stall on the floor of the New York Stock Exchange in New York July 15, 2010. REUTERS/Lucas Jackson