JPMorgan liable to billionaire Blavatnik over mortgage losses

Mon Aug 26, 2013 5:16pm EDT
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By Jonathan Stempel

NEW YORK (Reuters) - A New York state judge found JPMorgan Chase & Co (JPM.N: Quote) liable to Russian-American billionaire Leonard Blavatnik for breach of contract for stuffing an investment account he held with risky subprime mortgage securities, and ordered the bank to pay more than $50 million of damages including interest.

In a decision made public on Monday, New York State Supreme Court Justice Melvin Schweitzer ordered the largest U.S. bank to pay $42.5 million on the breach of contract claim, plus 5 percent annual interest starting in May 2008.

The Manhattan judge also found JPMorgan was not liable for negligence. His decision was dated August 21, and came about seven months after a three-week, non-jury trial.

Blavatnik had sued JPMorgan in 2009 to recover more than $100 million that he said the New York-based bank lost on a roughly $1 billion investment by CMMF LLC, a fund created by his firm, Access Industries Group.

The decision comes as JPMorgan faces a swirl of other litigation and investigations, including into its handling of mortgage-related businesses during the financial crisis.

According to Blavatnik, JPMorgan Investment Management (JPMIM) promised that it would invest Access' money conservatively after opening the account in 2006.

Instead, the bank allegedly breached a 20 percent limit set for mortgage-backed securities by misclassifying securities backed by a pool of subprime loans, known as ABS-home equity loans, as asset-backed rather than mortgage-backed securities.

Access also accused JPMorgan of continuing to hold the troubled securities despite knowing they were inappropriate for the portfolio. CMMF closed the account in May 2008.   Continued...

A sign stands in front of the JPMorgan Chase & Co bank headquarters building in New York, March 15, 2013. REUTERS/Lucas Jackson