JPMorgan Chase & Co (JPM.N) quietly paid $384 million to American Century Investment Management after losing an arbitration over alleged breaches related to the bank's purchase of a retirement plan services business.
A panel of the American Arbitration Association said JPMorgan's asset management unit deliberately violated a contractual agreement tied to the 2003 purchase from American Century, by promoting its own funds at the expense of American Century funds.
That JPMorgan unit had been overseen by Jes Staley, who now heads JPMorgan's investment banking operations. He is often mentioned by analysts as a possible successor to Jamie Dimon as chief executive of the largest U.S. bank.
"JPMorgan breached the contract over and over again," the arbitrators concluded in a 72-page decision. "Evidence that compels this finding and conclusion of the one-sided sales and marketing support given to JPMorgan Asset Management and its funds is voluminous."
American Century, based in Kansas City, Missouri, won the arbitration ruling on August 10, 2011. A Missouri state court confirmed the award on December 6.
The matter remained confidential until JPMorgan agreed to its disclosure on Wednesday. JPMorgan's payout includes the $373.3 million arbitration award plus interest.
In a statement on Thursday, the New York-based bank said it paid the award in 2011, and accounted for it as a "non-client litigation" expense in its results for last year's third quarter.
"We disagree strongly with the arbitrators' decision and award, because among other things, it misinterprets the contract, ignores facts favorable to us such as the performance of certain American Century Funds during the period in dispute, and ignores expert opinions that were favorable to us," spokeswoman Kristen Chambers said in an emailed statement.
American Century is pleased with the award. "Justice was served," spokesman Chris Doyle said. The privately-held company now has about $120 billion of assets under management.
STACKING THE DECK
According to the panel, JPMorgan agreed to promote the American Century funds when it bought Retirement Plan Services, which handles 401(k) plans for employers, from American Century.
But JPMorgan, which held a large minority stake in American Century's parent, had long wanted to buy the entire company, the arbitrators said.
Some of the bank's personnel figured that if American Century funds performed worse, that company's value might fall, making it cheaper to buy, they added.
Over time, JPMorgan "stacked the deck" against American Century by pushing in-house funds, encouraging customers to swap out of American Century funds, and awarding bonuses for selling JPMorgan products, the arbitrators said.
Employees were "informed by an understanding ... that sales and promotion of JPMAM products were more beneficial to their careers than sales and promotion of ACI or other managers' products," the arbitrators said.
Staley also came in for criticism. The arbitrators said he wore "dual hats" by sitting on the board of American Century's parent, American Century Cos, even as he was charged with boosting profit at JPMorgan Asset Management.
JPMorgan held a 41 percent stake in American Century until August, when it sold that stake to Canadian Imperial Bank of Commerce (CM.TO) for $848 million.
The case is American Century Investment Management Inc v. JPMorgan Invest Holdings LLC, Circuit Court of Jackson County, Missouri, No. 1116-CV21103.
(Reporting By Jonathan Stempel; editing by Carol Bishopric)