JPMorgan faces $2.2B Fraud Lawsuit over Bonds

Suit accuses broker of deleting records for $46.8 billion of bonds
that investors had not cashed in.

February 3, 2006

New York - JPMorgan Chase faces a civil lawsuit accusing the No. 3 U.S. bank of defrauding bond investors and others out of at least $2.2 billion over more than 20 years.

The lawsuit, filed Tuesday with the U.S. District Court in Brooklyn, seeks class-action status.

It accuses New York-based JPMorgan and its predecessors of deleting records for $46.8 billion of bonds that investors had not cashed in, covering up its errors, refusing to pay back bondholders, and collecting fees it did not deserve.

In 2001, JPMorgan agreed to pay a $1 million civil fine to settle Securities and Exchange Commission charges that it maintained inaccurate records and filed false reports while acting as a bond transfer agent.

"Chase has engaged in shady and illegal accounting practices concerning its handling of the bonds and its collection of service fees from ... bond issuers," the plaintiffs' lawyer, Norman Kaplan of Great Neck, New York, wrote in his 67-page complaint.

JPMorgan spokesman Brian Marchiony declined to comment. Kaplan did not immediately return calls and an e-mail seeking further comment.

The complaint asserted claims on behalf of two classes.

One class includes about 100,000 investors who bought New York state and city bonds and other municipal bonds from 1980 to 2002, where JPMorgan served as an agent or custodian. The complaint said the bank owes the investors $1.2 billion for bonds that matured or were called, but were not redeemed.

Another class includes bond issuers who supposedly paid more than $1 billion in fees for services the bank did not perform, and businesses that help investors track down unclaimed property. The 5,000 to 10,000 entities in this class are owed "well over" $1 billion, the complaint said.

Lead plaintiffs in the case include three bond investors who have not recovered their principal, and the manager of an unclaimed property service.

Chase Manhattan Corp. in late 1999 and early 2000 wrote off $28.8 million for processing errors and set aside $17 million to pay future claims, papers filed with an Illinois federal court show. The company acquired J.P. Morgan & Co. at the end of 2000.

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