Lehman, Taylor Bean, JPMorgan, Morgan Stanley in Court News - Businessweek

Lehman, Taylor Bean, JPMorgan, Morgan Stanley in Court News - Businessweek

U.S. Treasury Secretary Timothy Geithner agreed to answer questions in writing in Lehman Brothers Holdings Inc.’s lawsuit against JPMorgan Chase & Co. (JPM), which claims the bank contributed to Lehman’s collapse in 2008.

Geithner’s agreement, noted in a March 16 filing by the U.S. in federal court in Washington, forestalls a judge’s ruling on whether he could be compelled to testify in the case. U.S. District Judge Reggie Walton yesterday accepted the arrangement and ordered both sides to update him by April 3.

“If the parties should reach an impasse or plaintiff is otherwise dissatisfied with the written responses, the parties shall so notify the court,” Assistant U.S. Attorney John Interrante said in the filing.

Lehman sued Geithner in February, alleging that the Treasury Department “has for many months delayed and ultimately refused” to allow testimony by the secretary. His testimony is key to Lehman’s contention that JPMorgan siphoned off $8.6 billion during the 2008 credit crisis, according to a court filing in Washington.

Geithner, at the time president of the Federal Reserve Bank of New York, discussed the collateral JPMorgan was demanding for its loans with Richard Fuld and Jamie Dimon, Lehman’s and JPMorgan’s chief executive officers, in the week before Lehman’s bankruptcy, according to the filing. He also met with Dimon and Henry Paulson, then Treasury Secretary, to discuss “concerns” that Dimon was using the crisis to strengthen his bank at Lehman’s expense, they said.

Paulson, according to the March 16 filing, has also agreed to answer questions in writing.

Lehman claims in court papers to have interviewed more than 200 witnesses.

JPMorgan, which lent $70 billion to Lehman’s brokerage around the time of the 2008 bankruptcy, sued Lehman back after the $8.6 billion suit, alleging Lehman defrauded its lender into making the loan. JPMorgan has asked a judge to dismiss Lehman’s suit.

Lehman filed the biggest bankruptcy in U.S. history in 2008, listing $613 billion in debt.

The testimony case is Official Committee on Unsecured Creditors of Lehman Brothers Holdings In., 12-00098, U.S. District Court, District of Columbia (Washington). The main case is In reLehman Brothers Holdings Inc. (LEHMQ), 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Verdicts/Settlements

Ex-Taylor Bean Finance Chief Admits Role in $3 Billion Fraud

Taylor, Bean & Whitaker Mortgage Corp.’s former finance chief admitted to helping his boss, Lee Farkas, commit what prosecutors say was one of the largest bank frauds in U.S. history.

Delton de Armas, 41, pleaded guilty March 20 in federal court in Alexandria, Virginia, to one count of conspiracy to commit bank and wire fraud and one count of false statements in a scheme that contributed to the failures of Montgomery, Alabama-based Colonial Bank and its parent, Colonial BancGroup, once among the nation’s 25 biggest depository banks.

He faces as many as 10 years in prison when he’s sentenced by U.S. District Judge Leonie Brinkema on June 15.

“As CFO, Mr. de Armas could have put a stop to the fraud the moment he discovered it,” U.S. Attorney Neil MacBride said in an e-mailed statement. “Instead, the hole in Ocala Funding grew to $1.5 billion on his watch, and as it grew, so did his lies to investors and the government.”

From 2005 through August 2009, de Armas helped Farkas and other conspirators misappropriate more than $1.5 billion from Ocala Funding LLC, a financing vehicle used and controlled by Taylor Bean, according to a statement of facts filed by prosecutors and signed by de Armas. De Armas issued false financial reports that masked shortfalls at Ocala Funding in order to keep auditors at bay and investors on board, the document states.

“I regret I didn’t speak up more,” de Armas, of Carrollton, Texas, told Brinkema yesterday after being asked about his role in covering up Taylor Bean and Ocala Funding’s financial problems.

Farkas, the ex-chairman of Taylor Bean, is serving a 30- year sentence after being convicted in April of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets.

The case is U.S. v. Armas, 12-00096, U.S. District Court, Eastern District of Virginia (Alexandria).

For more, click here.

JPMorgan Chase Settles AFTRA Pension Suit for $150 Million

JPMorgan Chase & Co. will pay $150 million to settle a lawsuit claiming losses from the bank’s securities lending program, according to court papers.

The suit was filed by three union pension funds, which represented a class of all investors in a group of structured debt securities. The settlement was announced last month. The parties disclosed the terms of the agreement in a filing in Manhattan federal court March 16.

The funds claim they lost money that New York-based JPMorgan invested for them in medium-term notes issued by Sigma Finance Corp., a structured investment vehicle that collapsed in 2008.