JPMorgan Settles Lawsuit Over Alleged Misuse Of Lehman Funds For $20 Million

By Michael J. Lello

WASHINGTON, D.C. - (Mealey's) JPMorgan Chase Bank NA on April 3 agreed to pay $20 million to settle a U.S. Commodity Futures Trading Commission (CFTC) suit alleging that it mishandled Lehman Brothers Inc. customers' funds during Lehman's collapse (In re:  JPMorgan Chase Bank NA, No. 12-17, CFTC).

(Settlement order. Document #88-120423-274X.)

The CFTC filed and resolved the enforcement action regarding the bank's refusal to release more than $333 million in Lehman customers' money it held at the time of Lehman's 2008 bankruptcy, which is the largest in U.S. history.  According to the CFTC, JPMorgan acted as if the funds belonged to Lehman as opposed to its customers, in violation of the Commodity Exchange Act (CEA). 

"In anticipation of the institution of an administrative proceeding, the Respondent has submitted an Offer of Settlement ('Offer'), which the Commission has determined to accept," according to the CFTC order.  "Without admitting or denying any of the findings and conclusions herein, the Respondent acknowledges service of this Order Instituting Proceedings Pursuant to Section 6(c) and 6(d) of the Commodity Exchange Act and Making Findings and Imposing Remedial Sanctions." 

Commodity Exchange Act 

According to the CFTC, Lehman deposited with JPMorgan funds belonging to Lehman's customers ranging in aggregate amounts from approximately $250 million to more than $1 billion.  Pursuant to the CEA, neither JPMorgan nor Lehman was permitted to use or hold the customer funds as though they belonged to anyone other than Lehman's customers and the funds were not permitted to be used to extend credit to Lehman, the CFTC said.   

During this period, JPMorgan violated Section 4d(b) of the CEA and CFTC Regulations 1.20(a) and (c) by extending credit to Lehman based on Lehman's customers' segregated funds and then by declining to release the funds for a period of approximately 14 days after Sept. 17, 2008, two days after Lehman's holding company, Lehman Brothers Holdings Inc., filed for bankruptcy, the CFTC said.  Eventually, on Sept. 30, 2008, after receiving instructions from Lehman's trustee and CFTC officials, JPMorgan released the funds, the CFTC said. 

According to the order, JPMorgan must pay the $20 million civil penalty within 10 business days of the entry of the order.    

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