JPMorgan Accused of Self-Dealing in Managing Church Trust

JPMorgan Chase & Co. (JPM) was sued for fraud, self-dealing and mismanagement of trust accounts established for an Indianapolis church endowed by the descendants of drug company founder Eli Lilly.

The Christ Church Cathedral sued JPMorgan today in Indianapolis federal court, claiming it selected unsuitable and poorly-performing investments to further its own financial interests. The Episcopal church founded in 1837 accused the world’s fourth-biggest bank by asset value of breaching state and federal securities laws.

The bank “caused the church trusts to lose approximately $13 million in value as a result of JPMorgan’s decisions to purchase over 177 different investment products, mostly from itself, using church funds,” between July 2004 and December 2013, the plaintiffs said in the complaint.

The congregation seeks unspecified compensatory and punitive damages. The lawsuit comes five days after a Bloomberg News report that the Securities and Exchange Commission is reviewing whether conflicts of interest led JPMorgan to sell certain investment products to individual clients, according to a person briefed on the matter.

Guided Architecture

Banks can capture a greater portion of fees by having clients invest in their own products. The Christ Church Cathedral alleged JPMorgan employed a “guided architecture” platform through which it selected products based on their profitability to the bank.

Kristen Chambers, a spokeswoman for the New York-based bank, declined to comment on the church lawsuit.

JPMorgan put between 68 percent and 85 percent of the church’s assets into its own products, including private equity funds, structured notes and hedge funds, according to the complaint.

Christ Church claims JPMorgan made more money on some of the financial products it bought for the church, even as the trusts bore all of the risk. During one seven-year stretch ending in 2013, according to the complaint, the trusts, which were worth as much as $39.2 million, declined to $31.6 million, according to the filing.

At the same time, JPMorgan’s holdings increased by $1.4 trillion and its net revenue more than doubled, the church claimed.

The case is Rector, Wardens and Vestrymen of the Christ Church Cathedral of Indianapolis v. JPMorgan Chase & Co., 14-cv-01331, U.S. District Court, Southern District of Indiana (Indianapolis).

To contact the reporters on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net; Neil Weinberg in New York at nweinberg2@bloomberg.net

To contact the editors responsible for this story: David E. Rovella at drovella@bloomberg.net

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