Lehman Brothers Holdings Inc. (fka LEHMQ)

[DanBB]

By Mike Spector and Susanne Craig
Of THE WALL STREET JOURNAL


Lehman Brothers Holdings Inc.'s bankruptcy estate sued J.P. Morgan Chase &
Co. (JPM) Wednesday, alleging J.P. Morgan illegally siphoned billions of
dollars from Lehman in the days before the troubled investment bank filed the
largest bankruptcy in U.S. history.

The lawsuit alleges that J.P. Morgan Chief Executive Jamie Dimon and other
top executives used inside knowledge to take advantage of Lehman as its
financial state worsened. J.P. Morgan coerced Lehman to turn over $8.6 billion
in collateral in September 2008, triggering a liquidity squeeze that
contributed to Lehman's collapse, the suit said. The estate is hoping to recoup
billions in collateral the bank demanded, and other damages.

(This story and related background material will be available on The Wall
Street Journal Web site, WSJ.com.)

The lawsuit, long expected, contains among the most-significant allegations
to date about the interplay between Lehman and its one-time Wall Street
brethren.

J.P. Morgan served as Lehman's main "clearing bank," meaning it acted as a
middleman between Lehman and its lenders and investors. In this capacity, it
knew more than most market players about Lehman's financial state, which was
growing more dire in the summer and fall of 2008.

The lawsuit alleges J.P. Morgan used this advantage to squeeze billions of
dollars out of Lehman by demanding more collateral to cover its risks, ensuring
J.P. Morgan "would stand ahead of all other [Lehman] creditors--not just for
its clearance exposure, but for all possible exposure that could result from [a
Lehman] bankruptcy."

Lehman bowed to J.P. Morgan's demands, fearing that if J.P. Morgan ceased its
clearing activities, it would have triggered the firm's immediate collapse, the
suit said.

A J.P. Morgan spokesman said the lawsuit "is ill-conceived and meritless, and
we will vigorously defend it."

J.P. Morgan's collateral calls amounted to coerced "fraudulent transfers"
related to agreements that should be undone, Lehman said. Lehman said J.P.
Morgan should return the $8.6 billion seized before the bank's collapse, along
with billions in damages.

"A century ago, John Pierpont Morgan used his position atop the world of
finance to shore up a teetering firm and rescue the nation from the brink of
financial collapse," the lawsuit said, referring to Morgan's efforts during the
financial panic of 1907. "A century later, when the nation faced another epic
financial crisis, Morgan's namesake firm stripped a faltering Lehman Brothers
of desperately needed cash."

J.P. Morgan emerged from the depths of the financial crisis relatively
unscathed, with Dimon boasting in 2008 that the bank logged "exceptional"
market share gains in a wide range of businesses after Lehman's collapse, the
legal complaint said.


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(END) Dow Jones Newswires

05-26-10 1630ET

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