J.P. Morgan Chase was denied a quick payout of $965 million from insurers resulting from the failed delivery of natural gas and oil by energy giant Enron according to a federal court on March 5, as reported by Reuters.
Judge Jed Rakoff stated the arrangements appeared to be a concealed loan lacking sufficient indication otherwise, in a note denying summary judgment to Morgan. Morgan now faces a Dec. 2 trial date.
Morgan sued a group of insurers, including Chubb Corp. and CNA Financial Corp., for failing to honor surety bonds that are to be paid if a company fails to make a delivery or payment. Enron purchased the bonds to cover the sale of oil and gas to offshore trading unit Mahonia, and shortly after went bankrupt, defaulting the contracts.
Chubb and CNA insist the contracts were disguised loans, which would render them impermissible to be guaranteed with bonds.
The Reuters report goes on to point out that Rakoff further noted that Enron was purchasing the same amounts of gas at the same price from entity Stoneville Aegean while simultaneously selling the same amounts from Mahonia.
The arrangement further looks damning with evidence that Mahonia and Stoneville were set up by the same company, holding the same upper management.
Morgan maintains that the insurers must pay the surety bonds regardless, as they are accepted as unconditional guarantees. They further alleged that the bonds were carefully reviewed by legal representation of the insurers at the time of negotiation.
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