Billionaire Leonard Blavatnik won a $42.5 million breach of contract award against JPMorgan Chase & Co. (JPM) over claims the bank stuffed a fund with risky mortgage securities and lost 10 percent of his $1 billion investment. Blavatnik lost a negligence claim against the bank.
Blavatnik, 56, ranked 51st on Bloomberg’s billionaires index with a net worth of $15.6 billion, sued JPMorgan in 2009 in New York State Supreme Court in Manhattan, accusing the biggest U.S. bank by assets of putting more money into mortgage securities in his CMMF fund than investment guidelines allowed.
Justice Melvin Schweitzer, who presided over a two-week trial this year, ruled that J.P. Morgan Investment Management breached its contract with Blavatnik’s CMMF fund by exceeding a 20 percent cap on mortgage securities. The judge awarded $42.5 million in damages plus interest, in a ruling dated Aug. 21 and made public today.
J.P. Morgan Investment Management classified some mortgage investments in the account as asset-backed securities, increasing the amount of the fund’s mortgage assets to as much as 60 percent of the portfolio, Schweitzer said.
“Whether JPMIM had its own understanding that the ‘asset-backed securities’ category included some types of mortgage-backed securities is of no moment,” Schweitzer said. “There is no evidence that this was ever communicated to CMMF during the negotiations.”
The guidelines for the account were clear, that the investments had to be liquid and low-risk, with returns similar to a typical money market fund, Blavatnik said in a statement. He asked for $100 million in damages.
“I hope that this decision sends a clear message to JPMorgan that they have to honor their obligations to their clients,” Blavatnik said. “There are a lot of people out there who, I understand, feel they have been wronged by JPMorgan but cannot afford to take on a huge bank. They shouldn’t have to. JPmorgan should do the right thing because it is the right thing to do.”
Schweitzer found in favor of J.P. Morgan on Blavatnik’s claim of negligence and breach of fiduciary duty, saying that evidence shows that the securities were “relatively safe and desirable” at the time they were bought.
“Subsequent developments caused the securities to become illiquid and JPMIM advised CMMF to wait out the storm rather than sell at deeply discounted prices,” Schweitzer said. “The court finds that JPMIM acted reasonably in light of the information that was available to it at the time.”
Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan Chase, didn’t immediately respond to an e-mail seeking comment on the ruling.
The case is CMMF LLC v. J.P. Morgan Investment Management Inc., 601924-09, New York State Supreme Court (Manhattan).
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