A judge has ordered JPMorgan Chase & Co to pay $45 million to billionaire Leonard Blavatnik, finding the bank invested his money in risky mortgage-backed securities without his permission. Manhattan Supreme Court Justice Melvin Schweitzer (See Profile) ruled on Monday that JPMorgan, in its capacity as manager of an investment fund owned by Blavatnik, breached a contractual promise that it would invest no more than 20 percent of the fund's money in MBS. The billionaire claimed that as much as 60 percent was invested in MBS.
Schweitzer awarded Blavatnik $45 million plus interest in damages, which is about half of what Blavatnik sought. The judge dismissed Blavatnik's claims that JPMorgan's mismanagement constituted negligence or breach of fiduciary duty.
Blavatnik alleged that JPMorgan ignored his instructions that the investment fund was meant to be conservative and liquid. According to Blavatnik, JPMorgan misclassified MBS as "asset-backed securities" so that it could exceed the 20 percent cap on MBS.
Schweitzer held a two-week bench trial in January. Richard Werder of Quinn Emanuel Urquhart & Sullivan, squared off against Lewis Clayton of Paul Weiss Rifkind Wharton & Garrison for JPMorgan. Clayton said that JPMorgan put Blavatnik's money in AAA-rated securities, and that it couldn't have foreseen the housing market collapse. Clayton also argued that JPMorgan didn't misclassify MBS as ABS, arguing that it followed industry classification standards.
In Monday's decision, Schweitzer said that after reviewing contemporaneous emails, he found little evidence to support JPMorgan's claim that it properly classified some of the securities as ABS.
Schweitzer tossed Blavatnik's negligence and breach of fiduciary duty claims, however, ruling that JPMorgan "acted reasonably in light of the information that was available at the time."