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Investment Account Cases – Mortgage Securities

Assured Guaranty (UK) Ltd. v. J.P.Morgan Investment Management Inc., 08-603755 (N.Y. Supr. N.Y. Co.) Manhattan


This action was filed by reinsurance company Assured Guaranty in connection with losses suffered by JPM investment client Orkney Re II PLC, for which Assured was guarantor. “As the investment manager for approximately 553 million in assets for Orkney, Defendant JPMIM engaged in intentional breaches of fiduciary duty, gross negligence and intentional breaches of contract based upon the reckless and imprudent manner in which JPMIM plunged the assets under its care into undiversified, highly risky subprime mortgage-backed securities…and maintained such imprudent investment despite its fundamental obligation to preserve capital and its knowledge that such investment posed unreasonably high risk.” The complaint alleges that JPMIM was doing so while “companies affiliated with JPMIM were themselves simultaneously ridding their own investment portfolios of risky subprime and other [mortgage-backed securities], and had begun doing so even as JPMIM was initiating and maintaining Orkney’s investment in the same risky products.” Plaintiff alleges that the value of assets in certain of Orkney’s accounts has “precipitously declined in value by more than $200 million.”


Originally filed 27 January 2009 and subject to motion to dismiss by defendant; Amended Complaint was filed 13 May 2009; court’s decision and order on motion to dismiss approved dismissal of gross negligence and breach of fiduciary duty claims as preempted by New York’s securities law, the Martin Act. Appeal was taken to the Appellate Division, First Department and decided together with appeal in CMMF v. J.P. Morgan Investment Management Inc. et ano. Appellate Division held that Martin Act did not preempt the tort claims and reinstated them; it also determined that contract claims accruing before 26 June 2007 were barred by the parties’ contract notice period. Defendant has answered the Amended Complaint. Discovery is underway and scheduled to close in May 2012. Appeal by Defendants to the Court of Appeals has been permitted on the issue of whether the Appellate Division correctly reinstated plaintiff’s breach of contract claims that accrued after 26 June 2007.