Judge rules JPMorgan must face lawsuit over investments in Lehman
A federal judge on Wednesday said JPMorgan Chase & Co must face a lawsuit by a pension plan that accused it of mismanaging its money by investing in Lehman Brothers Holdings Inc notes before that bank filed for bankruptcy in 2008.
U.S. District Judge Katherine Forrest in Manhattan denied JPMorgan's bid to dismiss the 2009 lawsuit by the Operating Engineers Pension Trust of Pasadena, California.
The trust also accused JPMorgan of making risky investments in Lehman in an effort to prop Lehman up at the pension's expense while JPMorgan reduced its own exposure.
"The documents in the (lawsuit) cannot -- at this stage of the case -- dispatch plaintiff's claims to the waste bin," Forrest wrote.
A spokesman for JPMorgan declined to comment. Paul Geller, a lawyer for the pension plan, said he was pleased with the decision.
The lawsuit sought class action status on behalf of others in the same JPMorgan securities lending program.
The pension plan in 2005 had entered a securities lending agreement with JPMorgan, according to court papers.
The pension plan said that under the agreement, it loaned securities to the bank, which in turn loaned the securities to borrowers in return for cash collateral that JPMorgan was supposed to manage conservatively.
Instead, it said JPMorgan invested the collateral in an entity that held senior unsecured floating rate Lehman notes, and refused to sell them even as it became apparent that Lehman was in trouble. It said the notes lost 85 percent of their value when Lehman went bankrupt.
Last April, U.S. District Judge Barbara Jones dismissed an earlier version of the lawsuit, saying JPMorgan had met the "prudent man" standard set forth by federal pension law, and that the pension fund did not show that other investment managers would have acted differently.
But Jones allowed another version of the complaint to be filed, and Forrest took over the case when Jones stepped down from the bench.
JPMorgan said in court papers that it had closely monitored Lehman and in fact sold some of that bank's securities.
The case is The Board of Trustees of the Operating Engineers Pension Trust v. JPMorgan Chase Bank, National Association, U.S. District Court, Southern District of New York, No. 09-09333.
(Reporting By Bernard Vaughan; Editing by Leslie Adler)