FOREX NEW YORK COMPANIES

As the nation’s largest bank by assets JPMorgan Chase is bound to have its share of legal troubles but recently it’s been party to some of the ugliest accusations.

The most recent of JPM’s legal troubles are related to its massive trading loss of more than $2  billion. The loss has resulted in a number of lawsuits filed by employees and shareholders; even a probe by the FBI.

Today though a more complex legal issue resurfaced for JPMorgan. The trustee for the failed brokerage firm MF Global released a 285-page report about that firm’s bankruptcy, and it isn’t pretty. James Giddens says the former CEO, Jon Corzine, along with his executives may face legal claims for breach of fiduciary duty when they used customer money to fund a growing liquidity crisis.

To date, there is roughly $1.6 billion in missing client money at MF Global.

What does any of that have to do with JPMorgan Chase? It served as MF Global’s clearing bank. In fact, it was the agent for approximately $5.7 billion in securities lending transactions for MF Global, and in the final days of MF Global it was the recipient of some client money, according to the trustee’s report.

JPMorgan has not replied to a request for comment about today’s report.

In one instance in October MFGlobal was short on money in its JPMorgan accounts in London, according to the trustee. JPM’s Donna Dellosso, a ChiefRisk Officer Managing Director at JPM, had called MF Global CEO Jon Corzine about the overdraft issue. That same day on October 28, Corzine instructed MFGlobal’s Edith O’Brien, the brokerage’s former assistant treasurer to wire JPM money to clear the overdraft. She did with the following two transfers:

1. a wire of $200 million from the JPM Customer Trust Account to the Treasury House Account
2. and a wire of $175 million from the Treasury House Account to a account at JPM London

Later that day Dellosso followed up with her team at JPM to confirm that the money had been received. She learned that the initial $200 million was transferred from the JPM Customer Trust Account. From the report:

A JPM employee reportedly told Ms. Dellosso that movement of monies from a customer segregated account to a house account was not an uncommon practice for MFGI.95 Ms. Dellosso informed Mr. Zubrow that MFGI had in fact made the transfers to cover the overdraft, but that the funding for the transfer came from a Customer Segregated account.

Dellosso and her team reacted by reaching out to Corzine again this time asking him to offer written confirmation that the money it had transferred represented its own funds and thus that it was entitled to withdraw them pursuant to CFTC Rule 1.23. In other words, that the money being sent to JPMorgan did not belong to MF Global clients.

That’s when Laurie Ferber, the General Counsel at MF Global gets involved. MF Global said it was hesitant to sign the letter confirming that the funds belonged to MF Global because was it was “overly broad in that it referred to all transfers that had ever been made out of these accounts, which…would have necessitated a time-consuming administrative burden to review all such transactions.”

After much back in forth between JPM’s team and MF Global’s counsel the latter did not sign the letter. The report says:

JPM did not at any time receive a signed version of the letter, and there appear to have been no further discussions regarding the letter. Mr. Klejna advises that on Saturday evening Ms. O’Brien refused to sign the letter, even as narrowed, but indicated that she felt the transfers were appropriate based on an excess in the Customer Segregated accounts. The Trustee’s professionals have been unable to discern any basis for this alleged statement.

The problem is obviously that JPM never got the confirmation but took in the wire transfer any way.

Gidden,s whose job it is to recover as much as the customer money as possible, says JPM is cooperating with his investigation. To date, JPM has returned approximately $89.2 million in customer property and $518.4 million in non-segregated unallocated MF Global assets.

But that doesn’t mean JPM is in the clear. If talks with JPM stall then it will be in for a lawsuit. From the report: In the event these discussions do not result in an agreement, the Trustee, if appropriate, will commence litigation.