JP Morgan Chase 2010 Annual Report Download - page 285

JPMorgan Chase & Co./2010 Annual Report 285
United States Bankruptcy Court for the Southern District of New
York. The complaint asserts both federal bankruptcy law and state
common law claims, and seeks, among other relief, to recover $8.6
billion in collateral that was transferred to JPMorgan Chase Bank,
N.A. in the week preceding LBHI’s bankruptcy. The complaint also
seeks unspecified damages on the grounds that JPMorgan Chase
Bank, N.A.’s collateral requests hastened LBHI’s demise. The Firm
has moved to dismiss plaintiffs’ amended complaint in its entirety.
The Firm also filed counterclaims against LBHI alleging that LBHI
fraudulently induced the Firm to make large clearing advances to
Lehman against inappropriate collateral, which left the Firm with
more than $25 billion in claims against the estate of Lehman's
broker-dealer, which could be unpaid if the Firm is required to
return any collateral to Lehman. The case is in the early stages,
with a trial scheduled for 2012. In addition, the Firm may also face
claims in the liquidation proceeding pending before the same
Bankruptcy Court under the Securities Investor Protection Act
(“SIPA”) for LBHI’s U.S. broker-dealer subsidiary, Lehman Brothers
Inc. (“LBI”). The SIPA Trustee has advised the Firm that certain of
the securities and cash pledged as collateral for the Firm’s claims
against LBI may be customer property free from any security inter-
est in favor of the Firm. The Firm has also responded to various
regulatory inquiries regarding the Lehman matter.
Madoff Litigation. JPMorgan Chase & Co., JPMorgan Chase Bank,
N.A., JPMorgan Securities LLC, and JPMorgan Securities Ltd. have
been named as defendants in a lawsuit brought by the trustee for
the liquidation of Bernard L. Madoff Investment Securities LLC (the
“Trustee”). The Trustee asserts 28 causes of action against JPMor-
gan Chase, 16 of which seek to avoid certain transfers (direct or
indirect) made to JPMorgan Chase that are alleged to have been
preferential or fraudulent under the federal Bankruptcy Code and
the New York Debtor and Creditor Law. The remaining causes of
action are for, among other things, aiding and abetting fraud,
aiding and abetting breach of fiduciary duty, conversion and unjust
enrichment. The complaint generally alleges that JPMorgan Chase,
as Madoff’s long-time bank, facilitated the maintenance of Mad-
off’s Ponzi scheme and overlooked signs of wrongdoing in order to
obtain profits and fees. The complaint purports to seek approxi-
mately $6 billion in damages from JPMorgan Chase, and to recover
approximately $425 million in transfers that JPMorgan Chase
allegedly received directly or indirectly from Bernard Madoff’s
brokerage firm. JPMorgan Chase has filed a motion to return the
case from the Bankruptcy Court to the District Court, and intends to
seek the dismissal of all or most of the Trustee’s claims once that
motion is decided.
Separately, J.P. Morgan Trust Company (Cayman) Limited, JPMor-
gan (Suisse) SA, and J.P. Morgan Securities Ltd. have been named
as defendants in several suits in Bankruptcy Court and state and
federal courts in New York arising out of the liquidation proceed-
ings of Fairfield Sentry Limited and Fairfield Sigma Limited (to-
gether, “Fairfield”), so-called Madoff feeder funds. These actions
advance theories of mistake and restitution and seek to recover
payments previously made to defendants by the funds totaling
approximately $140 million.
Mortgage-Backed Securities Litigation and Regulatory Investiga-
tions.
JPMorgan Chase and affiliates, Bear Stearns and affiliates
and Washington Mutual and affiliates have been named as defen-
dants in a number of cases in their various roles as issuer and/or
underwriter in mortgage-backed securities (“MBS”) offerings.
These cases include purported class action suits, actions by individ-
ual purchasers of securities and actions by insurance companies
that guaranteed payments of principal and interest for particular
tranches. Although the allegations vary by lawsuit, these cases
generally allege that the offering documents for more than $100
billion of securities issued by dozens of securitization trusts con-
tained material misrepresentations and omissions, including state-
ments regarding the underwriting standards pursuant to which the
underlying mortgage loans were issued.
In the actions against the Firm as an MBS issuer (and, in some
cases, also as an underwriter of its own MBS offerings), three
purported class actions are pending against JPMorgan Chase and
Bear Stearns, and/or certain of their affiliates and current and
former employees, in the United States District Courts for the
Eastern and Southern Districts of New York. Defendants have
moved to dismiss these actions. In addition, Washington Mutual
affiliates, WaMu Asset Acceptance Corp. and WaMu Capital Corp.,
are defendants, along with certain former officers or directors of
WaMu Asset Acceptance Corp., have been named as defendants in
three now-consolidated purported class action cases pending in the
Western District of Washington. Defendants’ motion to dismiss was
granted in part to dismiss all claims relating to MBS offerings in
which a named plaintiff was not a purchaser. Discovery is ongoing.
In other actions brought against the Firm as an MBS issuer (and, in
some cases, also as an underwriter) certain JPMorgan Chase enti-
ties, several Bear Stearns entities, and certain Washington Mutual
affiliates are defendants in nine separate individual actions com-
menced by the Federal Home Loan Banks of Pittsburgh, Seattle,
San Francisco, Chicago, Indianapolis and Atlanta in various state
courts around the country; and certain JPMorgan Chase, Bear
Stearns and Washington Mutual entities are also among the defen-
dants named in separate individual actions commenced by Cam-
bridge Place Investment Management Inc. in Massachusetts state
court, by The Charles Schwab Corporation in state court in Califor-
nia and by Allstate in state court in New York.
EMC Mortgage Corporation (“EMC”), a subsidiary of JPMorgan
Chase, is a defendant in four pending actions commenced by bond
insurers that guaranteed payments of principal and interest on
approximately $3.6 billion of certain classes of seven different MBS
offerings sponsored by EMC. Three of those actions, commenced by
Assured Guaranty Corp., Ambac Assurance Corporation and Syn-
cora Guarantee, Inc., respectively, are pending in the United States
District Court for the Southern District of New York. The fourth
action, commenced by CIFG Assurance North America, Inc., is
pending in state court in Texas. In each action, plaintiff claims that
the underlying mortgage loans had origination defects that pur-
portedly violate certain representations and warranties given by
EMC to plaintiffs, and that EMC has breached the relevant agree-