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Lehman Sues JPMorgan, Claims Dimon Forced Firm Into Bankruptcy; Opens Avenue For AIG Lawsuit Against Goldman
In October of last year we wrote an extended piece discussing the conflict between the bankrupt Lehman Brothers estate (i.e., its unsecured creditors) and Barclays, in which JPMorgan played a prominent part, as it was the critical tri-party repo clearing bank on all of Lehman's collateral that would subsequently go to Barclays. As we summarized, extortion attempts back then by Barclays only had the adverse effect of making Jamie Dimon very, very angry: "Barclays' attempt to nickel and dime JPM (and the US taxpayers) so infuriated Jamie Dimon that he penned an angry letter to John Varley,
Barclays Group CEO (which CC:ed Barclays' president Bob Diamond),
threatening with litigation in case Barclays is intent on sticking JPM
with Lehman collateral that it thought was without value and not worth
assuming in a time when every single day stock prices were crashing
further lower." As we expected in October, the resolution would most likely involve litigation, as by dint of its collateral clearing position, JPM had unprecedented knowledge about Lehman's affairs: a special status that would likely be abused in a court of law. Sure enough, here is the lawsuit: the estate of Lehman Brothers, desperate to pick another several bps in recovery on their Lehman General Unsecured Claims, has sued JPMorgan, claiming Jamie Dimon's bank pushed Lehman into bankruptcy by forcing it to turn over $8.6 billion in collateral. As Lehman was completely insolvent long before JPM demanded any incremental collateral comfort, claiming that JPM was the catalyst for Lehman's bankruptcy is absolutely the same as saying that Goldman forced AIG's bankruptcy by increasing its collateral demands. While both arguments are ludicrous, should the JPM case proceed to court, it is tantamount that AIG immediately seek legal action against Goldman Sachs on identical grounds.
For a summary of our views on the vicious love triangle interplay between Lehman, Barclays and JPM in those long ago days, we refer readers to our October 2009 summary of the situation.
As we noted back then, the case was memorable in that courtesy of unsealed confidential filings, the US public for the first time had a chance to see the types of securities that could be pledged as collateral to both JPMorgan and to the Fed. We first noted that even bankrupt equities were acceptable to the Federal Reserve as collateral, an observation confirmed subsequently when the disclosure about the Lehman 105 fraud was made public by Anton Valukas (speaking of, when is the Lehman estate going to sue Dick Fuld for that particular alleged crime?).
From our original report, here is probably the most memorable quote of the total chaos reigning as Lehman was sinking:
Chaos
reigned throughout Thursday evening. You sent another $40 billion in
cash. Billions of dollars of securities were sent out and many were
"DK'd" or otherwise sent back. By about 11 o'clock, when DTC shut down,
you had apparently received a net total of approximately $42.7 billion
of securities. All of the confusion was heightened by the absence of
any definitive list of securities you were purchasing - an absence that
we believe further supports the notion that you were taking all of the
securities collateralizing our intraday advances.
And this environment is what Lehman will base a legal case on? Good luck.
The only good thing to come out of this will be even more insight into the Fed's repo operations, which however, we already know are a joke, as the Fed will gladly collateralize monkey feces in exchange for 100 cents on the dollar if it means propping up some institution that is not a direct competitor to Goldman's FICC trading deks.
Full filing below. It has the following cringeworthy phrasing that only a highly overpaid and marginally inebriated Curtis, Malet-Provost lawyer could come up with:
"A century ago, John Pierpont Morgan used his position atop the world of finance to shore up a teetering firm and rescue the nation from the brink of financial collapse. A century later, when the nation faced another epic financial crisis, Morgan's namesake firm stripped a faltering Lehman Brothers of desperately needed cash. On the bring of LBHI's bankruptcy, JPMorgan leveraged its life and death power as the brokerage firm's primary clearing bank to force LBHI into a series of one-sided agreements and to siphon billions of dollars in critically-needed assets."
Actually, JPM only siphoned off the assets that Lehman hadn't already done borderline criminal Repo 105 deals on, or the rest of its worthless CRE assets. We are not sure how JPMorgan was even able to find over $8 billion of quality assets in all of Lehman's balance sheet. What a pathetic charade by the Lehman estate. And again, for those who disagree - it is now time for AIG's shareholders to sue Goldman using precisely the same argument.
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ooo you know food resources get tight when the big animals start to turn on each other.
Let the games begin!
Although, assuming JPM had the right to demand that collateral, there doesn't seem to be much of a case here.
Well, as a result of the case and irrespective of its outcome some of the money from the financial world will finally trickle down to the economy - that is the lawyers.
Oh, wait a minute...
Yea!
Looking forward to some big dead animals!
Cannibalization time baby. They were all BK and GS,JP
and Paulson naked shorted AIG and LEH into BK. Lehma
likely has an intricate knowledge of things the TBTF do not want to surface. Will be great for transparency
AIG suing GS...yeahhhhh rrriiiggghhhtttt...
Ahhh...like one arm of tha squid waving it's tentacles at tha other...Tha Pranksters in tha ClownHouse own AIG...
Tha Hankster and mini-Hankster ain't gonna let that happen.
You're on to something there. Time to think outside of the legal arguments. Our society is beyond all that now (not enough honest officials left); we're in gangster-land where bluff, blackmail, payoff, influence, and even the odd hit determine the outcome.
Discovery on this could produce lots of embarrassing, even criminal evidence. As CatherineAustin below suggests, this is a hunt for a settlement. The negotiating chips will be things like insider trading, naked shorting, delivery failures (à la Matt Taibbi), conflicts of interest, to name a few. Hell, there may even be some dirt on the Fed itself, which might get involved to pressure (and lubricate) a settlement.
Oh Snap! Battle of the Big-Time Lawyers on tap.
I'd point out that AIG never filed bankruptcy. It got a, for all practical purposes, unlimited line of credit from the tax payers. Any outcomes from Lehman's litigation wouldn't be meaningfully applicable to AIG.
I would think BSC and WM have a good case against Dimon as well.
awesome, useless lawyers get to do some more useless lawyering.
We must have congress authorize immediate emergency funding for all the law schools to produce more suit-bedecked scum.
They already did with both bailouts.
The lawyer manufacturing centers must be protected to preserve American freedom.
AIG should sue Gladman Sucks. GS mangers packaging those CDOs knew they were shit, and that Moodys was using FICO scores rather than income to justify AAA ratings on the garbage. Its all there in "The Big Short" by Lewis.
Do you really think that the World Economy will last long enough for either party to see the inside of a courtroom? SCO has been able to drag out it's lawsuit(s) for over Seven years and counting!
The only interesting question here is: How will the parties in the case stick the US taxpayer with all the expenses of the case as well as the entire monetary resolution? That will be some interesting maneuvering right there, with plenty of application to the AIG/GS dustup.
No way these guys don't come out of this richer all around.
They need to set up a volunteer program for people who wish to help them accomplish their objectives. I know a few people who would be glad make this happen.
I wonder if Cramer is going to mention this on his show.
Im going to come right out and say it: Harry Wanger did the same to many. snick snick.
So I wasn't supposed to burn all those papers? Shit!
Come on, ZH team, time to brush up on your bankrupcty knowledge. This is an action by the Trustee to set aside insider payments to JPM. Their claim is that JPM's actions accelerated bankruptcy and precluded a more orderly wind-down. Not at all the same thing as saying JPM caused the bankruptcy. Actions to set aside insider payments are routine in bk.
No, I disagree. Actions to avoid preferences or constructively fraudulent transfers are routine. Here, the actions are predicated on actual fraud (see Counts I, II and III) and are in the amount of $9 billion. That's not routine at all.
Obummer's New Jobs Program
A plan to hire thousands of Harvard Law Wall Street lawyers to sue each other... Sort of like HFT for douche bag attorneys....
Then take fat fees and everybody at Lehman, JPM, GS and AIG get fat bonuses... I bet even Cassano gets a bonus...
+747
Many underemployed sharks out there.
FEED OUR LAWYERS. They need hot meat!
It would be easier and cheaper (not to mention faster) if we just brought back that good 'ol Salem Witch Trials way of handling things. Strap them all into dunking chairs, hold them underwater for several minutes. The ones that don't drown are witches and should be burned at the stake. The ones who do drown are, sadly, innocent. But will get their reward in heaven, so it's okay.
Well, it certainly looks like they're gonna drive another fucking stake into the euro tonight.
121.60 last
Hank Greenberg survived Normandy Beach but the House of Goldman took him out.
And Cassano walks.........geesh......
http://solari.com/blog/?p=723
American Bar Association Heaven - News & Commentary, March 19, 2008 at 10:03 amEdit
Well, now we have a hint as to why the American Bar Association does not seem to object to predatory lending and weekend bailouts. Either that or Sullivan & Cromwell and Skadden Arps are insisting on being paid in Swiss francs and Bear Stearn’s errors and omissions insurance company (AIG perhaps?) refused to bless the deal unless someone else picked up their entire liability.
JPMorgan Sets Aside $6 Billion to Combat ‘Stock Drop’ Claims After Bear Stearns Rescue
By Charlotte Edmond - Legal Week (17 Mar 2008)
As Bill King of the King Report always says, “you couldn’t make this stuff up.”
Note: In the interest of full disclosure, Catherine was once married to a Skadden Arps partner who has since moved to another Wall Street law firm.
You Asked:
Do you really think that the World Economy will last long enough for either party to see the inside of a courtroom?
Response:
Yes, however the goal is a settlement which is much more likely.
Smokescreen.
Tha money has already been taken.
C'est la Guerre.
I found this very interesting.
Fed sells 1.5B shares in Citi. Selling 1.5B more by June 30th.
http://bit.ly/1ax9Pw
$6.2B for roughly 20% of total holdings.
They couldn't sell it fast enough for me. The AIG CEO is saying he is going to pay back everything. That I would really like to see.
The market loves it futures up 2.50% on 100 contracts hahaha. Watch this gap open and volume sink.
Did someone hint that the lawyers on retainer would be fired? The big winner will be the legal department and their enormous money-grubbing billing department.
Besides, no one goes to jail and it is just another form of paper pushing. Legal papers, dollars, stocks.... what a great way to keep busy doing absolutely nothing productive for society.