UPDATE 1-JPMorgan, ex-Bear Stearns managers win dismissal of BofA lawsuit

Tue Sep 3, 2013 8:47pm EDT
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By Jonathan Stempel

NEW YORK, Sept 3 (Reuters) - JPMorgan Chase & Co and former Bear Stearns Cos managers Ralph Cioffi and Matthew Tannin won the dismissal of a lawsuit in which Bank of America Corp accused them of causing heavy losses by lying in a desperate bid to prop up two failing hedge funds.

U.S. District Judge Alison Nathan in Manhattan on Tuesday rejected Bank of America's fraud and breach of fiduciary duty claims, and said the bank failed to prove damages that could be traced to Bear's concealing of market-moving information.

The case was distinctive because it pitted the two largest U.S. banks against each other, over a mid-2007 event that was among the earliest high-profile signs of market stress that culminated in the 2008 global financial crisis.

It related to Bear's High-Grade Structured Credit Strategies and High-Grade Structured Credit Strategies Enhanced Leverage funds, which had been crammed with subprime mortgage-backed securities prior to their collapse.

According to a lawsuit first filed in October 2008, Bank of America suffered "significant losses" on a series of transactions that Bear had induced it to enter with the hedge funds in May 2007, two months before they went bankrupt and a year before JPMorgan bought Bear.

These transactions included a $4 billion securitization backed mostly by mortgage assets in the hedge funds, and the providing of nearly $1 billion of short-term financing.

Bank of America said it would not have entered these transactions had it known that the funds were facing substantial investor redemption requests, and were "desperate to secure liquidity" to avoid an imminent collapse.   Continued...