New Lawsuit Accuses JPMorgan of Breaking Duty to Clients

Newly opened documents reveal JPMorgan Chase broke its duty to clients by failing to warn the investments they were involved in were headed for trouble. The documents, which were unsealed as a part of a lawsuit filed by bank clients against Chase, show that top executives at the firm had advanced knowledge of problems with an investment vehicle called Sigma, but chose not to move millions in client assets out of it.

JPMorgan Chase Knew Sigma Was in Trouble

A new report from The New York Times revealed that in the summer of 2007, JPMorgan Chase was alerted to issues associated with Sigma, a company based in London. However, the bank chose not to move $500 million in client assets that it had been invested in it two months earlier.

The warnings were said to be so high that they traveled all the way to the bank’s chief executive, Jamie Dimon, yet no one acted.

One year later, Sigma collapsed and clients lost nearly all their money. However, according to the lawsuit, JPMorgan collected nearly $1.9 billion from Sigma’s demise because, as the investment vehicle’s troubles worsened, JPMorgan lent it billions of dollars and received valuable assets in the form of a security deposit in return.

This meant, when Sigma fell apart, many of assets became JPMorgan’s. Even more, these assets appreciated in value, giving the bank a huge profit.

Clients Were Not Provided with Safe Investments

The lawsuit states the JPMorgan had a responsibility to keep its clients in safe investments, but the firm chose not to, allowing investors to lose millions of dollars. Even more, the suit asserts that the bank’s workers developed a “grand scheme” to profit from Sigma in the event of collapse.

E-mails in the above mentioned documents showed that top executives communicated internally that the firm needed to protect its own interest in dealings with Sigma.

A spokesman for the bank, Joseph Evangelisti, denies the claims, stating that the suit’s accusations are “ludicrous.” He says the bank lent Sigma more than $8 billion to try to help it survive, not profit from its failure.

The Times noted that “the new documents paint of picture of how one of Wall Street’s strongest players profited in its deals with the weak.” But since it’s not clear what a bank’s obligations of disclosure are when much information or insight is based on public information, as it was with Sigma, it’s hard to determine, in a legal sense at least, whether the firm was truly guilty of any wrongdoing.