In one of the few "bank-on-bank" cases arising from the financial crisis, JPMorgan Chase & Co. has emerged the winner in a $3 billion battle with Bank of America. On Tuesday, Southern District Judge Alison Nathan (See Profile) granted summary judgment for Bear Stearns Asset Management Inc. (BSAM), which is owned by JPMorgan, in a dispute over an enormous failed collateralized debt obligation.
Bank of America sued BSAM in October 2008, alleging fraud and breach and contract. Bank of America and BSAM collaborated on a $4 billion collateralized debt obligation, with two BSAM hedge funds supplying the CDOs underlying mortgages. In June 2007 the hedge funds collapsed, and BofA lost nearly $3 billion on the CDO. BofA accused Bear Stearns of "egregious misconduct" for failing to inform BofA in early 2007 that the hedge funds were facing significant withdrawal requests from investors and were about to collapse. BofA also sued BSAM hedge fund managers Ralph Cioffi and Matthew Tannin.
Nathan found that Bank of America couldn't prove that its loss was caused by the alleged nondisclosure, as opposed to the market crash. She disqualified BofA's damages expert, Dr. Mukesh Bajaj, finding his methodology unreliable. She also found that the defendants didn't have a duty to disclose the redemption at the funds, and that BofA's behavior strongly suggested it didn't view the redemptions as important.
JPMorgan was represented by Barry Berke and Eric Tirschwell of Kramer Levin Naftalis & Frankel. Russell Englert Orseck Untereiner & Sauber represented Bank of America, which declined to comment. Cioffi is represented by Hughes Hubbard & Reed. Tannin is represented by Brune & Richard. Last year the two men settled with the SEC for $1.05 million.