The estate of Lehman Brothers Holdings is claiming that JP Morgan Chase abused its position as a clearing firm when it forced Lehman to give up $8.6 billion in cash reserve as collateral. In its securities fraud lawsuit, Lehman contends that if it hadn’t had to give up the money, it could have stayed afloat, or, at the very least, shut down its operations in an orderly manner. Instead, Lehman filed for bankruptcy in September 2008.
JP Morgan was the intermediary between Lehman and its trading partners. Per Lehman’s investment fraud lawsuit, JP Morgan used its insider information to obtain billions of dollars from Lehman through a number of “one sided agreements.” The complaint contends that JP Morgan threatened to stop serving as Lehman’s clearing house unless it offered up more collateral as protection. Lehman says it had to put up the cash because clearing services were the “lifeblood” of its “broker-dealer business.”
JP Morgan’s responsibilities, in relation to Lehman, included providing unsecured and secured intra-day credit advances for the broker-dealer’s clearing activities, acting as Lehman’s primary depositary bank for deposit accounts, and serving in the role of administrative agent and lead arranger of LBHI’s $2 billion unsecured revolving credit facility.
Lehman says that the $8.6 billion in collateral was billions more than what was needed to protect JP Morgan from such losses. As a result, Lehman claims that it was unable to explore other options besides bankruptcy. It is seeking the return of the extra cash so that the money can be used to pay creditors that are still awaiting payment in the wake of its bankruptcy proceedings. Not only was Lehman’s bankruptcy case the largest bankruptcy filing in US history, but it also helped instigate the worst economic crisis since the Great Depression.
Meantime, JP Morgan spokesperson Joseph Evangelisti has told BNA that the securities fraud complaint has no merit. A court-appointed examiner has said that Lehman’s collapse can be blamed on accounting irregularities. However, Lehman CEO Richard Fuld has said that he has no knowledge of such irregularities.
You can still seek financial recovery for Lehman structured products. Contact our securities law firm to discuss your case.
Related Web Resources:
Lehman Brothers estate sues J.P. Morgan Chase, Washington Post, May 28, 2010
Lehman Brothers Sues JPMorgan Chase & Co. (NYSE: JPM), Daily Trend, June 12, 2010
Lehman Files Biggest Bankruptcy After Suitors Balk, Bloomberg.com, September 15, 2008