Thursday, October 11, 2012

A “Grossly Negligent and Reckless” Trustee

Jamie Dimon did not enjoy today's New York Times.

On the front page JPMorgan's CEO was greeted with a story on emerging criminal prosecutions, focused on traders associated with Morgan's infamous London Whale and his $6-billion trading loss.

The business section was just as depressing: JPMorgan Told to Pay $18 Million to a Trust.

The trust case concerns an oil heiress with lots of Exxon Mobil stock and the trustee's use of a complex investment product, designed to cash in on appreciated shares without triggering tax on capital gain.
Judge Linda G. Morrissey of the Tulsa County District Court in Oklahoma said that the bank had breached a series of fiduciary duties in its handling of the trust of Carolyn S. Burford, an oil heiress who died in 1996. The court also ordered JPMorgan to pay punitive damages, to be set at a later date, along with the trust’s legal fees.
Judge Morrissey concluded that JPMorgan had breached its fiduciary duty in 2000 when it sold what are known as variable prepaid forward contracts to the trust, a complex fee-rich product that the judge determined was unsuitable for the trust.
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The judge found that JPMorgan, which ended up with the account after a series of bank mergers, had not properly explained the product to its client and had failed to disclose that the bank was benefiting from the transaction. The bank also breached its duty when it invested the proceeds of the contracts in its own investment products, which the judge said “amounted to double dipping” that was unreasonable.

Jamie Dimon is widely admired in the financial world, and rightly so. Yet he has to be wondering whether it's possible to build a financial institution that's too big to fail without creating one that's too big to manage.

1 comment:

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