Lehman Brothers Holdings Inc.'s bankruptcy estate sued JPMorgan Chase & Co. Wednesday, alleging it illegally siphoned billions of dollars from Lehman in the days before the troubled investment bank filed the largest bankruptcy in U.S. history.
The lawsuit alleges that JPMorgan Chase executives used inside knowledge to take advantage of Lehman as its financial state worsened. JPMorgan Chase coerced Lehman to turn over $8.6 billion in collateral in September 2008, triggering a liquidity squeeze that contributed to Lehman's collapse, the suit said.
The lawsuit, long expected, contains among the most-significant allegations to date about the interplay between Lehman and its onetime Wall Street brethren.
JPMorgan Chase served as Lehman's main "clearing bank," acting as a middleman between Lehman and its lenders and investors. In this capacity, it knew more than most market players about Lehman's financial state, which was growing more dire in the summer and fall of 2008.
The lawsuit alleges JPMorgan Chase used this advantage to squeeze billions of dollars out of Lehman by demanding more collateral to cover its risks, ensuring JPMorgan "would stand ahead of all other creditors — not just for its clearance exposure, but for all possible exposure that could result from [a Lehman] bankruptcy."
A JPMorgan Chase spokesman said the lawsuit "is ill-conceived and meritless, and we will vigorously defend it."