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Lehman Brothers estate sues J.P. Morgan Chase

By Stephen Bernard
Friday, May 28, 2010; A21

NEW YORK -- The estate of Lehman Brothers Holdings sued J.P. Morgan Chase, alleging that the firm helped drive Lehman into bankruptcy by forcing it to give up billions of dollars in cash reserves that it otherwise could have used to stay afloat.

The suit, filed Wednesday, says J.P. Morgan forced the now-failed bank to put up collateral in the days before it collapsed that sapped Lehman of cash that, at the least, would have enabled it to wind down operations in an orderly process.

Lehman filed for bankruptcy in September 2008, helping to spark one of the worst financial crises since the Great Depression. It was the largest bankruptcy filing in U.S. history.

J.P. Morgan spokesman Joe Evangelisti said the lawsuit "is ill-conceived and meritless."

A bankruptcy examiner's report of Lehman's failure released in March blamed the company for its own collapse, saying that some of its top executives took on too much risk and misrepresented the bank's financial health.

J.P. Morgan served as an intermediary between Lehman and its trading partners. In that role, Lehman said, J.P. Morgan used inside knowledge of the bank to "siphon billions of dollars" through a series of "one-sided agreements," according to the suit.

The suit alleges that J.P. Morgan threatened to stop providing its clearing services if Lehman didn't provide more collateral to protect J.P. Morgan from risks tied to serving as a bridge for Lehman and its trading partners. Lehman said that without J.P. Morgan acting as a clearing agent, it would have immediately been forced into bankruptcy.

Evangelisti said J.P. Morgan provided more than $100 billion in credit to Lehman on a daily basis while acting as the bank's clearing agent. J.P. Morgan continued to provide Lehman with credit through its bankruptcy.

Lehman says the $8.6 billion in collateral it provided J.P. Morgan in its final four days of operations was billions more than was needed to protect against losses.

The lawsuit says J.P. Morgan should return the extra cash so it can be paid to creditors still owed money from the bankruptcy proceedings.

-- Associated Press

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