JPMorgan liable to billionaire Blavatnik over mortgage losses

A New York state judge found JPMorgan Chase liable to Russian-American billionaire Leonard Blavatnik for breach of contract for stuffing an investment account he held with risky subprime mortgage securities, and ordered the bank to pay more than US$50 million of damages including interest.

In a decision made public on Monday, New York State Supreme Court Justice Melvin Schweitzer ordered the largest US bank to pay US$42.5 million on the breach of contract claim, plus 5 per cent annual interest starting in May 2008.

The Manhattan judge also found JPMorgan was not liable for negligence. His decision was dated Aug. 21, and came about seven months after a three-week, non-jury trial.

Blavatnik had sued JPMorgan in 2009 to recover more than US$100 million that he said the New York-based bank lost on a roughly US$1 billion investment by CMMF, a fund created by his firm, Access Industries Group.

The decision comes as JPMorgan faces a swirl of other litigation and investigations, including into its handling of mortgage-related businesses during the financial crisis.

According to Blavatnik, JPMorgan Investment Management (JPMIM) promised that it would invest Access’ money conservatively after opening the account in 2006.

Instead, the bank allegedly breached a 20 per cent limit set for mortgage-backed securities by misclassifying securities backed by a pool of subprime loans, known as ABS-home equity loans, as asset-backed rather than mortgage-backed securities.