million UK court case which has potentially significant
implications for the banking industry in cases of investors
claiming compensation for being mis-sold exotic
investments.
While the affair involves investments sold 10 years ago, lawyers
have been awaiting the outcome because the issues involved are
similar to those expected to arise in litigation stemming from the
current credit crisis.
Go deeper with GlobalData
In the Morgan suit, the High Court in London dismissed a claim by
one of Greece’s wealthiest shipping dynasties, the Polemis family,
which had sued the bank in an effort to recoup losses suffered in
the Russian debt crisis of 1998. The family claimed it had lost
almost half of its $700 million portfolio in emerging markets
securities after it hired JPMorgan on an advisory basis and only
bought investments on the direct recommendations of its
bankers.
The family alleged this advice was negligent because JPMorgan
recommended high-risk securities despite knowing the family had
requested a low-risk approach.
JPMorgan declared it did not have an advisory relationship with the
Polemis family, which it said were experienced investors who chose
their own trades in full knowledge of the risks involved.
Mrs Justice Gloster found for JPMorgan, saying the bank was not
liable to compensate the family for its losses.
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By GlobalDataLawyers say the outcome represents a victory for investment and
private banks which have been concerned they could face mis-selling
cases where investors claimed they did not understand what was
being placed in their portfolios.
None the less, some banks are having to pick up client losses from
soured investments. Citigroup has been asking private clients to
accept a $250 million compensation package, in return for dropping
legal claims against the company over the Falcon Strategies hedge
fund, which has lost about 80 percent of its value. Citi is facing
a class action from private clients over Falcon. Robert Zeff, a
Smith Barney client in Florida who is leading the action, claimed
the fund was marketed to clients as “an extremely low-risk
investment”.
