JP Morgan Chase & Co was sued by shareholders who accuse the second-biggest US bank of breaking securities laws by failing to disclose the amount of money it might lose because of loans made to Enron Corp.
Los Angeles-based law firm Glancy & Binkow LLP filed a class-action suit in US District Court in New York on behalf of shareholders who purchased JP Morgan Chase shares from Nov. 28 to Jan. 28, according to a statement issued by the firm. Shares of JP Morgan Chase fell 8.5 percent during the two-month period.
The suit says JP Morgan Chase was reckless when it issued a public statement Nov. 28 that didn't fully disclose its risk and loss exposure to the Houston-based energy trader, which filed for Chapter 11 bankruptcy protection Dec. 2. The investment bank listed total exposure at US$900 million, then increased the amount to US$2.6 billion, said Lionel Glancy, a partner at Glancy & Binkow.
"This is just one more of the cascade of lawsuits that are Enron related," said Michael Holland, chairman of money management firm Holland & Co, which sold all of JP Morgan Chase shares within the past two months.
The action is without merit, JP Morgan Chase spokesman Joseph Evangelisti said today.
"We don't know the exact nature of their full relationship with Enron," Glancy said. "We just felt we have sufficient information to show that they were reckless during that short period of time."
The US SEC is reviewing JP Morgan Chase's disclosures about Enron exposure, and whether the company stated it in a timely fashion, the Wall Street Journal reported yesterday, citing people familiar with the situation. SEC spokeswoman Christi Harlan declined to comment on whether the agency is investigating JP Morgan Chase.
"That they would have done it purposely defies the credibility test," Holland said. "Why would they give one number and then have to come out with another? It is an embarrassment for them."
JP Morgan Chase shares and bonds declined this year after the bank posted its first quarterly loss in five years by writing off trading losses and loans to Enron and to Argentina, which defaulted on debt. The New York-based company's shares have declined 40 percent in the past year.
CEO William Harrison told employees earlier this month that JP Morgan Chase assumed too many risks in dealings with Enron. The bank wrote off US$456 million of trading losses and loans to the company last quarter and still has exposure to potential losses of US$2.06 billion. The company also wrote off US$351 million for its exposure to Argentina.
JP Morgan Chase traded commodities with Enron, provided loans and advised Enron in its failed attempt to be acquired by rival Dynegy Inc.
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