JPMorgan countersues Lehman in battle over billions

NEW YORK/BANGALORE (Reuters) - JPMorgan Chase & Co countersued Lehman Brothers Holding Inc, accusing the bankrupt investment bank of sticking it with tens of billions of dollars of loans that might never be repaid.

A flag hangs on the wall of the JP Morgan company stall on the floor of the New York Stock Exchange in New York July 15, 2010. REUTERS/Lucas Jackson

Responding to Lehman’s $8.6 billion lawsuit, JPMorgan accused Lehman of fraud for having left it with more than $25 billion of unpaid loans backed by some of its U.S. brokerage unit’s “most toxic” securities.

JPMorgan said it had lent the unit more than $70 billion on September 18, 2008, three days after Lehman’s record bankruptcy.

It said it expected to be repaid when Barclays Plc finished buying that unit. Instead, JPMorgan said Barclays did not buy all the debt underlying the loans, as Lehman promised.

JPMorgan also accused senior Lehman employees in its countersuit of having “greased the wheels” of the transaction by winning offers of “lucrative” employment with Barclays.

“With Lehman’s help, Barclays cherry picked the securities it wanted” and took $5 billion of margin, according to the countersuit filed Wednesday in the U.S. bankruptcy court in Manhattan. “JPMorgan was left holding the bag.”

JPMorgan is seeking unspecified damages, according to the edited version of the countersuit that was made public.

Lehman spokeswoman Kimberly Macleod declined to comment.

The countersuit escalates JPMorgan’s legal battle with Lehman, which accused it a May 26 lawsuit of illegally siphoning $8.6 billion of desperately-needed collateral in the four business days prior to its bankruptcy.

It said JPMorgan took the collateral while knowing both of Lehman’s distress through its role as the main “clearing” bank for Lehman transactions with other parties, and that the government would not bail Lehman out.

Lehman was once the fourth-largest U.S. investment bank. It is trying to repay creditors still owed hundreds of billions of dollars, and is also suing Barclays to recover an $11 billion “windfall” profit from the purchase of the brokerage unit.

U.S. Bankruptcy Judge James Peck oversees the Lehman bankruptcy and related litigation. A ruling in the Barclays case is expected in early 2011. A trial in the JPMorgan case may not begin until 2012.

JPMorgan has sought court approval to made an unedited version of its countersuit public.

The case is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-03266. The main bankruptcy case is In re: Lehman Brothers Holdings Inc in the same court, no. 08-13555.

Reporting by Sakthi Prasad and Santosh Nadgir in Bangalore and Jonathan Stempel in New York; Editing by Matthew Jones, Dave Zimmerman