* JPMorgan liable for breach of contract, not negligence
* Blavatnik claimed more than $100 mln losses
NEW YORK, Aug 26 (Reuters) - A New York state judge found JPMorgan Chase & Co liable to Russian-American billionaire Leonard Blavatnik for breach of contract for stuffing an investment account he held with risky subprime mortgage securities, and ordered the bank to pay more than $50 million of damages including interest.
In a decision made public on Monday, New York State Supreme Court Justice Melvin Schweitzer ordered the largest U.S. bank to pay $42.5 million on the breach of contract claim, plus 5 percent annual interest starting in May 2008.
The Manhattan judge also found JPMorgan was not liable for negligence. His decision was dated Aug. 21, and came about seven months after a three-week, non-jury trial.
Blavatnik had sued JPMorgan in 2009 to recover more than $100 million that he said the New York-based bank lost on a roughly $1 billion investment by CMMF LLC, a fund created by his firm, Access Industries Group.
The decision comes as JPMorgan faces a swirl of other litigation and investigations, including into its handling of mortgage-related businesses during the financial crisis.
According to Blavatnik, JPMorgan Investment Management (JPMIM) promised that it would invest Access' money conservatively after opening the account in 2006.
Instead, the bank allegedly breached a 20 percent limit set for mortgage-backed securities by misclassifying securities backed by a pool of subprime loans, known as ABS-home equity loans, as asset-backed rather than mortgage-backed securities.
Access also accused JPMorgan of continuing to hold the troubled securities despite knowing they were inappropriate for the portfolio. CMMF closed the account in May 2008.
In finding JPMorgan liable for exceeding the 20 percent cap, Schweitzer rejected the bank's argument that "industry practice" was to classify the home equity loans separately from mortgage securities because they carried different risks.
"Not only was the ostensible 'industry practice' to which JPMIM repeatedly refers unknown to CMMF, JPMIM itself frequently defined securities backed by subprime mortgages as 'mortgage securities' and not as asset-backed securities - and did so in some of its most important documents used with regulators, ... clients, ... shareholders ... and internally," he wrote.
In ruling for JPMorgan on the negligence claim, Schweitzer said the mortgage securities were considered "relatively safe and desirable" when they were bought, and that JPMorgan acted reasonably in light of current conditions when it advised CMMF to "wait out the storm" rather than sell at depressed prices.
JPMorgan spokesman Doug Morris said: "We are pleased that the court rejected CMMF's negligence claims, and found that our investment professionals lived up to their responsibilities. We respectfully disagree with the court's interpretation of our agreement with CMMF, and we are considering our options regarding that finding."
David Elsberg, a partner at Quinn Emanuel Urquhart & Sullivan representing Blavatnik, said in an interview: "Hopefully it signals that banks need to live up to their obligations to clients, and as the court makes clear, not hide behind what they often try to refer to as 'industry practice.'"
Blavatnik also welcomed the decision. "There are a lot of people out there who, I understand, feel they have been wronged by JPMorgan but cannot afford to take on a huge bank. They shouldn't have to," he said in a statement. "JPMorgan should do the right thing because it is the right thing to do."
Blavatnik is worth about $16 billion, making him the world's 44th richest person, Forbes magazine said in March.
The case is CMMF LLC v. JPMorgan Investment Management Inc, New York State Supreme Court, New York County, No. 601924/2009.
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.