There’s a lot more at stake with J.P. Morgan (NYSE:JPM) than the lawsuit by billionaire Len Blavatnik over a $98 million trading loss with the company, which he claims resulted from the bank not following his investment guidelines, resulting in the huge losses.
The stakes in the case are if Blavatnik wins, it could release an extraordinary string of lawsuits around the country based on what at this time is how certain securities are defined.
As far as the investment guidelines being ignored by J.P. Morgan, Blavatnik claims the bank had close to double what his instructions were for his investments in risky mortgages, while at the same time J.P. Morgan was selling them off to protect themselves.
Blavatnik counters that that shouldn’t matter, as it was the banks’ responsibility to adjust his investments accordingly. J.P. Morgan responded to that saying if they had done that they would have had to sell the securities at a loss, which would have resulted in Blavatnik suing them anyway.
Concerning what the case will revolve around, it will be in how an asset-backed security is defined. If that were to go against J.P. Morgan, you can see the types of doors that could be opened for more lawsuits based upon what the conclusions are concerning that definition. Everyone will be running to their portfolios to see if they experienced losses based on that definition if it’s different than what is being described by J.P. Morgan.
At issue in the complaint is real estate in a number of investment forms was listed as asset-backed, which according to Blavatnik are in reality mortgage securities. He bases this on J.P. Morgan not revealing this in their statements, which grouped the mortgages with other instruments. In response, J.P. Morgan said while it is standard industry practice to report these as asset-backed, they still let Blavatnik’s company Access Industries know the difference.
The other major factor is whether it is proven Chase did sell the same instruments while having their customers hold them in their portfolios, or even be encouraged to buy them.
Where the lawsuit stands now is Judge Melvin L. Schweitzer of New York State Supreme Court has thrown out two of the allegations of Blavatnik, while allowing two to stand. The two allowed to go forward are negligent misrepresentation and breach of contract.
J.P. Morgan and Blavatnik have appealed that decison as of January 28. At this point it is at the discovery phase of the process.
