Investors have not been happy about the pending merger between Chase Manhattan Corp. and J. P. Morgan & Co., but we suspect that not many are aware of a RICO suit against them in which Japan's Sumitomo Bank is seeking $532 million from Chase and $735 million from Morgan.

At the end of October, a Federal judge refused to dismiss the lawsuits, which allege that the two banks aided and abetted a rogue trader in a global scam involving the copper market.

The case is not frivolous. The plaintiff is giant Sumitomo, and its law firms are no get-rich-quick class action attorneys. Paul, Weiss, Rifkind, Wharton & Garrison represents Sumitomo against Morgan, and Kronish, Lieb, Weiner & Hellman against Chase.

Sumitomo alleges that Chase and Morgan made huge loans to Yasuo Hamanaka, a former trader at Sumitomo, and helped Hamanaka disguise the fact that they were loans. The former Sumitomo trader is appealing an 8-year prison sentence in Japan for fraud and forgery.

Although judges often chafe when parties assert racketeering claims under the federal "RICO" statute in commercial disputes, Judge John S. Martin of the federal district court in New York City sided with Sumitomo in his Oct. 30 decision denying Morgan's and Chase's motions to dismiss Sumitomo's complaint against them.

By permitting Sumitomo to proceed--possibly to a jury--with its RICO claims, Judge Martin greatly improved Sumitomo's chances to recover a bounty in the litigation. If Sumitomo succeeds on those claims, it may recover three times its losses and its attorneys' fees. Sumitomo also is pursuing intentional fraud claims that were not attacked in the recent court skirmish.

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