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« PHOTO OF THE DAY - Econ 101 By Ben S. Bernanke | Main | Subpoenaed Documents Show Goldman Sachs Offered to 'Tear Up' AIG Derivatives Contracts at 'Right Price' Before NY Fed Took Over Negotiations »
Saturday
Sep222012

JPM Sued For 'Grand Theft Derivatives' In Lehman Failure

Lehman, dead, but still filing lawsuits.

JPM is being sued for stealing $230 million and 'filing false and inflated claims' in a $2.6 billion derivatives battle with Lehman.  It was a mad scramble for cash and collateral in Lehman's final week, and Jamie Dimon's team grabbed everything they could find while Fuld and company were busy admiring their recently awarded, ridiculously enormous pay packages.  But that's another story.

---

WSJ

Lehmans bankruptcy estate is suing J.P. Morgan over the bank's more than $2.6 billion in derivatives claims.  Lehman, joined by its creditors, is asking a bankruptcy judge to slash J.P. Morgan's claims related to terminated swaps and other deals Lehman struck with JPM and Bear Stearns.

Lehman's lawyers said Friday that J.P. Morgan "inflated" its claims by, among other techniques, choosing the wrong valuation dates and adding charges for losses the bank didn't suffer.

Lehman also claims J.P. Morgan understated the amounts that the bank and Bear Stearns owed the failed investment bank after netting out their trades.

Lehman is also asking U.S. Bankruptcy Judge James Peck of Manhattan to force J.P. Morgan to return more than $230 million it says the bank illegally grabbed as so-called setoffs of amounts owed under derivatives transactions.

In addition to trading with Lehman, J.P. Morgan served as Lehman's clearing bank, providing cash advances of up to $100 billion a day to Lehman to facilitate overnight repurchase, or repo, agreements, a major element supporting the so-called shadow banking system.  It held the collateral that Lehman pledged to secure the loans in the triparty repurchase agreements.

That role has resulted in J.P. Morgan being one of Lehman's key adversaries in numerous disputes surrounding the investment bank's demise as well as one of the largest creditors of the bankrupt holding company and its subsidiaries.

Lehman Brothers sued J.P. Morgan in 2010 for $8.6 billion, claiming the bank's demand for more collateral triggered a liquidity squeeze that contributed to Lehman's failure.  J.P. Morgan later countersued, arguing its traders actually benefited Lehman's creditors by avoiding a fire sale of the bank's assets in the days following Lehman's collapse.

Judge Peck trimmed some of Lehman's claims in that case, which is pending.

Earlier this year, the estate made its initial distribution to creditors, paying out $22.5 billion, more than double its original estimate.  It plans to make a second distribution Oct. 1.

Continue reading...

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New Bankruptcy Documents Reveal Outsize Pay at Lehman Before Collapse

http://dealbook.nytimes.com/2012/04/27/new-bankruptcy-documents-reveal-outsize-pay-at-lehman-before-collapse/

Robert Millard, the head of Lehman’s proprietary trading operations — the group that traded the bank’s own money — was in line to make $51.3 million in 2007, making him the highest-paid employee on a list of the top-50 paid employees that year. The list shows that he was paid $44.5 million in 2006 and $3.8 million in 2005. Mr. Millard now runs Realm Partners, a hedge fund in New York.

The $51.3 million paid to Mr. Millard approximates the pay package received by Mr. Fuld that year, which, depending on how it was calculated, was worth $40 million to $51.6 million.

*

Lehman links from around the web:

Lehman and Its Creditors Seek to Subpoena Geithner

Still Waiting For Money At Lehman After Four Years In Bankruptcy

Lehman Lives to Pay 18 Cents on Dollar

Lehman awarded $700 million to its 50 highest-paid employees in 2008

 

 

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Reader Comments (7)

Lehman and Its Creditors Seek to Subpoena Geithner

http://dealbook.nytimes.com/2012/02/17/lehman-and-its-creditors-seek-to-subpoena-geithner/

Lawyers for Lehman’s creditors wrote in a court filing that they and the estate served Mr. Geithner with a subpoena last August, ordering him to testify about conversations he had held with both JPMorgan and Lehman over the former’s calls for collateral in early September 2008.
Sep 20, 2012 at 5:32 PM | Registered CommenterDailyBail
New Bankruptcy Documents Reveal Outsize Pay at Lehman Before Collapse

http://dealbook.nytimes.com/2012/04/27/new-bankruptcy-documents-reveal-outsize-pay-at-lehman-before-collapse/

Robert Millard, the head of Lehman’s proprietary trading operations — the group that traded the bank’s own money — was in line to make $51.3 million in 2007, making him the highest-paid employee on a list of the top-50 paid employees that year. The list shows that he was paid $44.5 million in 2006 and $3.8 million in 2005. Mr. Millard now runs Realm Partners, a hedge fund in New York.

The $51.3 million paid to Mr. Millard approximates the pay package received by Mr. Fuld that year, which, depending on how it was calculated, was worth $40 million to $51.6 million.
Sep 20, 2012 at 5:33 PM | Registered CommenterDailyBail
But there's one issue that stands out to me as the biggest problem at Lehman — in short, they were misrepresenting their liquidity pool. In a huge way.

It's disappointing that this issue has been almost completely overlooked, because the brazenness of their misrepresentation was shocking. I think the best way to think about it is this: on Friday, September 12, Lehman claimed that it had a $32.5bn liquidity pool, and on Monday, September 15, Lehman needed $16bn to finance non-central bank eligible collateral. So why, if their liquidity pool was twice the size of their funding requirement, did they have to file for bankruptcy? The answer is that Lehman didn't actually have a $32.5bn liquidity pool; they had, at most, a $2.5bn liquidity pool. That is not a typo.

http://dailybail.com/home/analysis-screaming-for-liquidity-at-lehman.html
Sep 20, 2012 at 7:30 PM | Registered CommenterDailyBail
Like watching vultures fight over a corpse.
Sep 21, 2012 at 12:10 AM | Unregistered CommenterHoward T. Lewis III
Geithner's Temper And Transparency Exposed: "No One Has Ever Made The Banks Disclose The Type Of Shit That I Made Them Disclose..."

http://dailybail.com/home/book-excerpt-geithners-temper-and-transparency-exposed-no-on.html
Sep 21, 2012 at 12:20 AM | Registered CommenterDailyBail
There is no honor among thieves.
Sep 21, 2012 at 1:18 AM | Unregistered CommenterS. Gompers
U.S. banks push back as financial-crisis lawsuits pile up

http://www.reuters.com/article/2012/10/15/us-usa-banks-enforcement-idUSBRE89E03620121015

[snip]

As U.S. authorities seek to make Wall Street pay for its role in triggering the financial crisis more than four years ago, banks are starting to fight back, frustrated that they are being asked to pay more than once for the same conduct.

The result may be that federal and state authorities trying to extract penalties from the banks are forced to go through lengthy courtroom battles, instead of getting hundreds of millions of dollars through relatively quick settlements.

In the past two weeks, two of the biggest banks were hit with separate mortgage-related lawsuits.

One from the U.S. Attorney's office in Manhattan accused Wells Fargo of misleading the government in a "longstanding and reckless" pattern of certifying the quality of questionable home loans and failing to report problems on others...

...In the other case, New York State Attorney General Eric T. Schneiderman last week filed a civil suit against JPMorgan for alleged fraud at Bear Stearns, which JPMorgan bought at the government's request in 2008.

JPMorgan is also fighting back against those charges. Chief Executive Jamie Dimon lashed out this week in Washington at a public event, saying his bank has already paid its price. It took on up to $10 billion in losses related to Bear Stearns for doing the Federal Reserve "a favor.

Rita Glavin, a former Justice Department official who is a partner at the law firm Seward & Kissel, said banks may be reaching a point where they don't see the logic in settling cases because it's not allowing them to move past the liability.

"You may be seeing them saying, we're going to draw a line in the sand, and we're not simply going to lay down and get rolled over," Glavin said.

The strategy does come with some danger of new information being disclosed that private litigants can use in their own lawsuits against the banks.

But the civil cases also indicate the banks will likely face no criminal charges for the same conduct, potentially giving the banks less reason to immediately resolve them.

"If the banks have come to the determination that the worst that is going to happen is this civil case, then there is less of a downside for going forward," said Neil Barofsky, former inspector general of the TARP bailout who now teaches at New York University School of Law...

[Money quote]


The Justice Department declined to comment. James Freedland, a spokesman for the New York Attorney General's office, said about the JPMorgan case: "It would be the ultimate legal loophole if accountability for billions of dollars worth of fraud upon taxpayers and investors could simply disappear into the ether because ownership of a company changed hands."

Note: James Freeland of the NYAG's office didn't mention the 5 year statute of limitations on fraud and thus, the ass dragging of the Justice Dept to run the clock out for the banks.
Oct 15, 2012 at 6:34 AM | Unregistered Commenterjohn

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