U.S. District Judge Barbara Jones had dismissed an early version of the lawsuit last year, but the pension fund had been allowed to file a revised complaint. Jones had held that JPMorgan had met the “prudent man” standard and the pension fund had failed to show that JPMorgan had acted in any manner other than ordinary investment managers would have.
According to court documents, the pension plan had made a securities lending agreement with JPMorgan in 2005. Under the agreement, the pension plan loaned securities to the bank, which then loaned the securities to borrowers against cash collateral managed by JPMorgan.
However, the lawsuit alleges, instead of managing the cash collaterals conservatively, JPMorgan invested the cash collateral in an entity which was supported by senior unsecured floating rate Lehman notes. This entity refused to sell Lehman’s senior notes, even when it became apparent that Lehman was in deep trouble, thus leading to a loss of about 85 percent of the value of the notes.
While denying JPMorgan’s motion to dismiss the suit, the federal judge observed, “The documents in the (lawsuit) cannot – at this stage of the case – dispatch plaintiff’s claims to the waste bin.”
The lawsuit also accuses JPMorgan of making the risky investments with the intention of backing Lehman at the expense of the money of the pension trust, while JPMorgan played down its direct support of Lehman.
The lawsuit, The Board of Trustees of the Operating Engineers Pension Trust v. JPMorgan Chase Bank, National Association, U.S. District Court, Southern District of New York, No. 09-09333, seeks class action status on behalf of others similarly affected by the same JPMorgan securities lending program.