Lehman estate files lawsuit to recover $8.6 billion from JP Morgan

27 May 2010

The Lehman's bankruptcy estate has accused JPMorgan Chase & Co of unlawfully extorting billions of dollars from the beleagured bank just before it collapsed in September 2008.

The lawsuit alleges that JPMorgan extracted $8.6 billion in collateral from the firm. JP Morgan served as Lehman's main ''clearing bank,'' meaning it acted as a middleman between Lehman and its lenders and investors. According to the lawsuit JP Morgan used this advantage to squeeze billions of dollars out of Lehman by demanding more collateral to cover its risks.

Lehman Brothers filed for Chapter 11 bankruptcy in 2008 September after Barclays and Bank of America abandoned talks to buy the company (See: Lehman bankruptcy: How deep is the cut?)

In April 2010, a New York judge approved a plan by the Lehman Brothers estate to form an asset management company that would represent a new beginning for the defunct investment bank Lehman Brothers Holdings Inc (See: Judge okays Lehman Bros' restructuring plan).
With this new suit, filed in New York bankruptcy court, the bankruptcy estate is seeking to recover the billions of dollars Lehman paid as collateral to JPMorgan, together with damages.

At the heart of the suit are allegations that JPMorgan's senior leadership, including CEO Jamie Dimon, gained inside knowledge of Lehman's precarious condition. The firm then used its privileged role as Lehman's main banker to hold ''a financial gun to [Lehman's] head,'' the complaint said.

If Lehman did not agree to JPMorgan's demands, it feared that the bank would stop performing clearing activities for Lehman, which would have provoked an instant collapse, the suit claimed.