In 1996, the Sumitomo Corp of Japan discovered that a copper trader named Yasuo Hamanaka had lost US$2.6 billion over the prior decade. The company eventually sued JP Morgan as well as Chase Manhattan, charging that both banks, which have since merged, engineered loans disguised as trades that allowed Hamanaka to conceal his losses.
Now, several insurance companies, in legal filings tied to a court hearing on Wednesday, accuse the company, now known as JP Morgan Chase, of having used similar tactics to help Enron. As the insurers describe it, the bank's transactions allowed Enron to disguise debts.
JP Morgan has sued a total of 11 insurers for refusing to honor its US$1 billion in claims relating to its dealings with Enron, which filed for bankruptcy.
Arguing against the bank in both cases is Alan Levine, a lawyer at Kronish, Lieb, Weiner & Hellman in New York, who hopes to strengthen the Enron case by arguing that there has been a pattern at JP Morgan Chase.
"The conclusion that Chase deliberately camouflaged a loan to Enron as a commodity transaction in order to perpetuate a fraud" on the insurance companies, Levine says in a court filing, "is buttressed by Chase transactions with other firms."
Describing a transaction as a trade instead of a loan could make a company's debts look smaller than they really are.
JP Morgan maintains that there is nothing unusual, much less fraudulent, about the sorts of transactions involved in these cases.
A spokesman for JP Morgan, Joseph Evangelisti, said the Enron and Sumitomo cases are unrelated. "These cases are not analogous in any way, and will be decided on their own merits," he said. "The only link between the suits is they share the same lead counsel."
Besides representing three of the insurance companies in the Enron case, Levine also represents Sumitomo in a lawsuit it filed in 1999 against Chase Manhattan, but not in a suit Sumitomo filed around the same time against JP Morgan.
Both suits are still pending.
In the Enron case, JP Morgan has asked a Federal District Court judge in New York to issue an immediate ruling when he holds a hearing on Wednesday, avoiding evidence gathering and a trial.
Both cases may hinge on whether JP Morgan fully disclosed the nature of the trades, involving contracts known as derivatives. Derivatives promise payments from one party to another, with the value derived from changes in the price of an underlying security, index or commodity.
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