NEW YORK, Dec 13 (Reuters) - A state appeals court on
Tuesday tossed a lawsuit filed by JPMorgan asserting that a
$250 million settlement between Bear Stearns and the Securities and Exchange Commission should be covered by the bank's
Reversing Supreme Court Justice Charles Ramos, the
Appellate Division, First Department, held that the money paid
in the settlement did not constitute an "insurable loss"
because the actions that led to the agreement represented an
intentional violation of the law.
The 2006 deal settled the SEC's claim that Bear Stearns had
facilitated late trading and deceptive market timing for
certain customers, mostly hedge funds, between 1999 and 2003,
providing them with hundreds of millions of dollars in profits
at the expense of mutual-fund shareholders. JPMorgan acquired
Bear Stearns in 2008 after it collapsed during the subprime
In agreeing to settle the case, Bear Stearns paid $160
million in disgorgement and $90 million in civil penalties.
While the brokerage specifically did not admit or deny the
findings, as is common in SEC settlements, a five-judge panel
ruled that the evidence overwhelmingly supported the company's
"[R]ead as a whole, the offer of settlement, the SEC Order,
the NYSE order and related documents are not reasonably
susceptible to any interpretation other than that Bear Stearns
knowingly and intentionally facilitated illegal late trading
for preferred customers, and that the relief provisions of the
SEC Order required disgorgement of funds gained through that
illegal activity," Justice Richard Andrias wrote for the
Vigilant Insurance Company and several other insurers,
including Travelers, Liberty Mutual and Lloyd's of London, were
not responsible for paying losses incurred through "any
deliberate, dishonest, fraudulent or criminal act or omission,"
according to the policy, as long as there was an "adverse final
adjudication to that effect," Andrias wrote.
Lawyers for both sides did not immediately comment on the
ruling. A call to JPMorgan was not immediately returned.
The case is JPMorgan et al v. Vigilant et al, Appellate
Division, First Department, New York State Supreme Court, No.
For JPMorgan: John Gross, Francis Landrey, Steven Obus, and
Seth Schafler of Proskauer Rose
For Vigilant Insurance and Federal Insurance: Joseph
Finnerty III, Megan Shea Harwick, Eric S. Connuck, and Miles
Norton of DLA Piper
For Travelers: Douglas Mangel, Marsha Indych, Ericka Lenz,
and David Abernathy of Drinker Biddle & Reath
For National Union Fire Insurance Company of Pittsburgh:
Luke Lynch, Richard Russell, and Liza Chafiian of D'Amato &
For Liberty Mutual: Scott Schechter of Kaufman Borgeest &
For Lloyd's: Edward Kirk and Allison Calkins of Clyde &
For American Alternative Insurance: Michael Gioia of
Landman Corsi Ballaine & Ford
(Reporting by Joseph Ax)
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