JPMorgan has been ordered to pay billionaire Leonard Blavatnik US$42.5 million damages in relation to a soured investment in mortgage-backed securities.
The New York State Supreme Court Justice Melvin Schweitzer has ruled that JPMorgan had breached its contract with Blavatnik’s CMMF fund because it exceeded a 20% cap for mortgage-backed securities in the fund by misclassifying securities backed by a pool of subprime loans.
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The judge’s ruling said JP Morgan should pay US$42.5m damages, plus interest at 5% a year from 2008.
Blavatnik had sued JPMorgan in 2009 to recover more than US$100 million that he said the New York-based bank lost on a roughly US$1 billion investment by CMMF LLC, a fund created by his firm, Access Industries Group.
JP Morgan Investment Management classified some mortgage investments in the account as asset-backed securities, increasing the amount of the fund’s mortgage assets to as much as 60% of the portfolio, Schweitzer said.
According to Blavatnik, JP Morgan Investment Management promised that it would invest his money conservatively after opening the account in 2006.
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By GlobalDataHowever, the judge found against Blavatnik in his claim for negligence. The bank made an error of judgement, that is all, and this alone is not sufficient to establish a breach of duties owed to CMMF as its investment adviser, the judge wrote in his ruling.
JPMorgan spokesman Doug Morris said: "We are pleased the court rejected CMMF’s negligence claims and found that our investment professionals lived up to their responsibilities. We respectfully disagree with the court’s interpretation of our agreement with CMMF and are considering our options regarding that finding."
