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Lehman Brothers Holdings Inc. has been constantly making efforts to evade payment claims by JPMorgan Chase & Co. ( JPM - Analyst Report ) . Moreover, Lehman claims to get back $8.6 billion paid as collateral to JPMorgan. Therefore, Lehman has requested U.S. Bankruptcy Judge James Peck to reconsider parts of the lawsuit filed in 2010 to help it win cancellation of payment claims.
However, the Bankruptcy Court did not allow Lehman to sue JPMorgan for transactions guarded by the safe harbor laws, making the way more difficult for Lehman to proceed with its efforts. Moreover, in April 2012, the judge also dismissed part of the lawsuit, which Lehman demands to review for reinstatement.
The Story So Far
In May 2010, Lehman filed the lawsuit against the Wall Street giant, accusing it of extorting billions of dollars just before the company filed for bankruptcy, by utilizing insider information.
According to the lawsuit, which was filed in the U.S. Bankruptcy Court in the Southern District of New York, JPMorgan had insider information about Lehman's poor financial condition. Also, being the key lender for Lehman, JPMorgan took advantage based on the condition of depriving Lehman of important clearing services unless it pays a significant amount of collateral.
Earlier in April 2012, the Commodity Futures Trading Commission (CFTC) had penalized JPMorgan for its alleged involvement in the nation’s biggest bankruptcy filed by Lehman. For this, JPMorgan will be paying a fine of $20 million to the CFTC. This was the first federal action taken since Lehman’s downfall.
The CFTC’s action stemmed from the filing of bankruptcy by MF Global Holdings Ltd, which had an uncanny resemblance to Lehman brothers’ downfall. Here also, JPMorgan was acting as the fund manager.
In the MF Global case, the customers money (nearly $1.6 billion) simply vanished a week before the company went insolvent. This loss is a subject of investigation by the regulators. However, JPMorgan is not yet accused for any offense in this case.
JPMorgan can breathe a sigh of relief since certain safe harbor provisions in the U.S. bankruptcy code protected some of its moves while taking collateral from Lehman.
However, JPMorgan’s tryst with the regulatory authorities seems to be a never-ending issue. Moreover, frequent involvement in controversies and lawsuits has profoundly dented the company’s reputation JPMorgan has been paying hefty compensations to various regulatory authorities, which will surely impact its financials in future.
Currently, JPMorgan retains a Zacks #4 Rank, which translates into a short-term Sell rating. One of its peers, Bank of America Corporation ( BAC - Analyst Report ) retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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