Taxonomical Issue Costs JPMorgan Chase $50 Million

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Jamie Dimon & Co. owe Leonard Blavatnik half the money they lost him on mortgage-backed securities because they called some MBS something other than MBS. But it could have been worse!

Mr. Blavatnik sued JPMorgan in 2009 to recover more than $100 million that he said the bank lost on a roughly $1 billion investment by CMMF L.L.C., a fund created by his company, Access Industries….

According to Mr. Blavatnik, JPMorgan Investment Management promised that it would invest Access’s money conservatively after opening the account in 2006.

Instead, according to Mr. Blavatnik, the bank breached a 20 percent limit for mortgage-backed securities by misclassifying securities that were backed by a pool of subprime loans, known as ABS-home equity loans, as asset-backed rather than mortgage-backed securities….

In finding JPMorgan liable for exceeding the 20 percent cap, Justice Schweitzer rejected the bank’s argument that “industry practice” was to classify the home equity loans separately from mortgage securities because they carried different risks.

In ruling for JPMorgan on the negligence claim, Justice Schweitzer said that the mortgage securities were considered “relatively safe and desirable” when they were bought, and that JPMorgan acted reasonably in light of current conditions when it advised CMMF to “wait out the storm” rather than sell at depressed prices.

Lots of people are similarly situated, Blavatnik says. Luckily, the world’s 44th-richest man is there to protect the little guy who lost a bunch of money in custom-made JPMorgan investment vehicles.

“There are a lot of people out there who, I understand, feel they have been wronged by JPMorgan but cannot afford to take on a huge bank. They shouldn’t have to,” he said in a statement. “JPMorgan should do the right thing because it is the right thing to do.”

Judge Rules Against JPMorgan in Suit Over Billionaires Losses [Reuters via NYT]

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