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Investment Account Cases – Mortgage Securities

CMMF, LLC v. J.P. Morgan Investment Management, Inc. and Ted Ufferfilge 09-601924 (N.Y. Supr. N.Y. Co.) Manhattan

Summary:

This action alleges that CMMF, a fund created by Access Industries Group, engaged J.P. Morgan Investment Management Inc. to manage an account designed for conservative and liquid investment, including diversity and credit rating requirements and in particular a requirement that no more than 20% of fund assets could be invested in mortgage-backed securities. Plaintiff alleges that JPMIM and the plaintiff’s individual investment manager instead saturated CMMF’s investment account with “the riskiest and most illiquid mortgage securities” at prices defendants knew or should have known were too high, and continued to hold such investment in CMMF’s account despite being overvalued and inappropriate for the account, and “…despite the fact that JPMorgan’s own parent company recognized as early as the fall of 2006 that the prudent reaction to the declining real estate market was to unload residential reason estate investments as quickly as possible.” CMMF’s account allegedly lost at least $98 million as a result of defendants’ actions. Plaintiff’s First Amended Complaint also alleges that defendants made misrepresentations about, among other things, the number and quality of securities in the account and the value of the account; and that defendants were negligent and breached their fiduciary duties to the client in managing the account. The action asserts claims of breach of contract, negligent misrepresentation, negligence and breach of fiduciary duty.

Status:

Originally filed in August 2009. Plaintiff’s original complaint was subject to a motion to dismiss which was partially granted (a narrow version of the breach of contract claim was allowed to proceed along with the negligent misrepresentation claim; claims for negligence and breach of fiduciary duty were dismissed as duplicative. The result was affirmed on appeal by the Appellate Division, First Department (decided in conjunction with appeal in Assured Guaranty (UK) Ltd v. J. P. Morgan Investment Management Inc. Plaintiff has filed an Amended Complaint, alleging the same four causes of action, with added and revised allegations; Defendants’ have moved to dismiss; this motion is pending decision by the court. Document discovery has begun and is scheduled to continue through December 2011.

News:

  1. http://www.law.com/jsp/nylj/PubArticleNY.jsp?id=1202489823091&src=EMC-Email&et=editorial&bu=New%20York%20Law%20Journal%20&pt=NYLJ%20Special%20Supplement&cn=specials%2004%2F18%2F11&kw=First%20Department%20Rejects%20Martin%20Act%20Preemption&slreturn=1&hbxlogin=1
  2. http://www.reuters.com/article/2011/04/08/us-jpm-lawsuit-idUSTRE73786C20110408
  3. http://www.bloomberg.com/news/2011-04-08/blavatnik-gets-counts-reinstated-in-lawsuit-against-jpmorgan.html
  4. http://www.reuters.com/article/2009/06/22/us-blavatnik-jpmorgan-idUSTRE55L5X520090622
  5. http://www.bloomberg.com/news/2010-11-24/blavatnik-s-jpmorgan-suit-to-move-forward-after-n-y-appeals-court-ruling.html

Documents:

  1. http://jpmorgan-watch.com/files/43_8_april_2011_decision_and_order_on_motion_to_dismiss.pdf
  2. http://jpmorgan-watch.com/files/40_1st_amended_complaint_(redacted).pdf