Judge Dismisses J.P. Morgan Fraud Claim

September 17, 2002

A federal judge has dismissed J.P. Morgan Chase & Co.’s fraud claim levied against 11 insurers, possibly derailing the company’s attempt to gather approximately $1 billion in losses resulting in trade losses with bankrupt Enron Corp, according to a Dow Jones story.

The insurers—including Liberty Mutual Insurance Co., Safeco Insurance Co., St. Paul Fire & Marine Insurance Co. and Travelers Property and Casualty Corp. (TAP)—are battling in litigation with J.P. Morgan Chase to determine who should bear the cost of nearly $1 billion in Enron financing that went bad following Enron’s collapse.

J.P. Morgan Chase wants the insurers to pay because they reportedly guaranteed with “surety bonds” the series of failed energy trades between Enron and Mahonia, an offshore, special purpose entity controlled by J.P. Morgan Chase. The insurance companies however claim the arrangements were really loans disguised as trades.

J.P. Morgan Chase added that the insurance companies were well capable of understanding the complex transactions and they actually sold the surety bonds with no intention of ever paying up if asked to do so.

The insurers, meanwhile, have gone on to accuse J.P. Morgan Chase of conspiring to make Enron appear in better shape than it was as part of a move to allow Enron to continue making payments on large loans already owed to the bank.

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