JPMorgan sued by noteholders. Profit vs reputation?

JPMorgan Chase didn't disclose that Sons of Gwalia, an Australian metals producer, was in the midst of a financial crisis when the bank sold its notes, investors say in a lawsuit.

The noteholders claim in their suit that JPMorgan, the third-largest U.S. bank, raised tens of millions of dollars in fees by selling Gwalia notes, prior to the mining company filing for bankruptcy in August 2004.

U.S. investors holding more than $170 million in Gwalia notes "have been significantly damaged as a result of Chase's conduct," the complaint says.

The plaintiffs in the case, including Jana Master Fund, a Cayman Islands company, are seeking more than $80 million in damages. The suit doesn't name Gwalia, which supplies more than half of the world's tantalum, a grey-blue metal used to make capacitors for regulating electricity flow in products such as video-game consoles and mobile telephones.

JPMorgan spokeswoman Kristin Lemkau declined to comment.

The suit was filed on Nov. 17 in state court in New York. JPMorgan today asked that the case be transferred to Manhattan federal court.

JPMorgan knew when it sold Gwalia notes that the company had undisclosed liabilities of more than $443 million, was in default on some debt obligations, and "was experiencing an internal financial crisis so severe that it had just fired its CFO," the complaint says.

The suit is Jana Master Fund v. JPMorgan Chase, Southern District of New York (Manhattan).

Profit is undoubtedly the main objective of every corporate company. But at what cost? The charge against JP Morgan could have cost them their reputation. I believe they were fully aware of the consequences of their actions, yet they still went ahead with it.

They still have their side of the story to tell but to trade reputation for profit would be terribly silly, wouldn't it?