Billionaire Leonard Blavatnik won a $42.5 million breach-of-contract award against JPMorgan Chase & Co. 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 the Bloomberg 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 broke its contract with the CMMF fund by exceeding a 20 percent cap on mortgage securities, according to an Aug. 21 judgment made public today that awards interest on top of damages.
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 New York-based JPMorgan 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.
“We are pleased the court rejected CMMF’s negligence claim and found that our investment professionals lived up to their responsibilities,” Doug Morris, a spokesman for JPMorgan, said in a statement. “We respectfully disagree with the court’s interpretation of our agreement with CMMF and are considering our options regarding that finding.”
The case is CMMF LLC v. J.P. Morgan Investment Management Inc., 601924-09, New York State Supreme Court (Manhattan).