NEW YORK CITY — The estate of Lehman Brothers Holdings Inc. claims JPMorgan Chase & Co. helped drive Lehman into bankruptcy by forcing it to give up billions of dollars in cash reserves that it otherwise could have used to stay afloat.
The Lehman estate alleges in a lawsuit filed Wednesday that JPMorgan forced the now-failed bank to put up collateral that sapped Lehman of cash that, at the least, would have enabled it to wind down operations in an orderly process.
Lehman filed for bankruptcy in September 2008, the largest bankruptcy filing in U.S. history.
JPMorgan spokesman Joe Evangelisti said, “the lawsuit is ill-conceived and meritless.” JPMorgan will defend itself against the claims, he added.
A bankruptcy examiner’s report of Lehman’s failure, released in March, blamed Lehman’s collapse on Lehman and some of its top executives for taking too much risk and misrepresenting the bank’s financial health.
JPMorgan served as Lehman’s clearing agent, acting as an intermediary between Lehman and its trading partners. In that role, Lehman accused JPMorgan of using inside knowledge of the bank to “siphon billions of dollars” through a series of “one-sided agreements,” according to the lawsuit filed in bankruptcy court in New York.
The lawsuit alleges JPMorgan threatened to stop providing its clearing services if Lehman didn’t provide more collateral to protect JPMorgan from risks tied to serving as a bridge for Lehman and its trading partners. Lehman said without JPMorgan acting as a clearing agent, it would have immediately been forced into bankruptcy.
Evangelisti said JPMorgan provided more than $100 billion in credit to Lehman on a daily basis while acting as the bank’s clearing agent. JPMorgan continued to provide Lehman with credit even through its bankruptcy proceedings.
Aside from the increased collateral requirements, Lehman claims JPMorgan forced it into agreements that would put JPMorgan ahead of other creditors should the bank fail.
Lehman claims the $8.6 billion in cash collateral it had to provide JPMorgan during its last four days of operations was billions of dollars more than was truly needed to protect JPMorgan from potential losses.
The lawsuit says JPMorgan should return the extra cash so it can be paid out to other creditors that are still owed money from the bankruptcy proceedings.