Louise Story at the NYT has this:
In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JPMorgan Chase were raising red flags about a troubled investment vehicle called Sigma, which was based in London. But the bank chose not to move out $500 million in client assets that it had put into Sigma two months earlier.
Sigma collapsed a year later. Now, new documents unsealed late last month as part of a lawsuit by bank clients against JPMorgan show for the first time just how high the warnings about Sigma went — all the way to the office of the bank’s chief executive, Jamie Dimon.
Industry group SIFMA thinks the lawsuit has little merit:
The Securities Industry and Financial Markets Association, a prominent trade group, wrote a brief in support of JPMorgan last month saying that the pension funds that are suing had an “unprecedented and novel theory” that “contradicts decades of Congressional and regulatory guidance.”
Where was the fiduciary duty? And where was the Chinese Wall? From a legal standpoint SIFMA may well turn out to be absolutely right. Reputationally, things aren’t so great, though. Follow the money:
By September 2008, when Sigma defaulted, JPMorgan had lent it a total of $8.4 billion and had received $9.3 billion of assets as a security deposit, according to the suit. The value of the collateral was dubious at that point, given the panic of the financial crisis, and it was unknown if the assets would decrease in value.
But a year later, many investments had risen in value, the suit says. JPMorgan made over $470 million in profit within a year of the default by selling off some of the collateral and had recorded a paper gain of $1.2 billion on assets it still held, according to the suit. The bank had also made $228 million in fees from Sigma in exchange for the loans. The total gain was nearly $1.9 billion, the suit says.
The pension funds whose money JPMorgan had put into Sigma lost nearly all of their investment. The suit said their $500 million became worth 6 cents on the dollar.
Mr. Evangelisti, the JPMorgan spokesman, said the bank disputed the profit figures but he would not say how much the bank believed it made on the Sigma transactions.
It all looks like the JP Morgan version of the GS Abacus lawsuit.
Even if no liability is accepted, or perhaps, particularly if it isn’t accepted, JP Morgan’s Asset Management division will find its pitches get a wee bit more difficult, for a while.