NEW YORK - J.P. Morgan Chase & Co.'s chairman and chief executive officer, William Harrison, and the bank's board of directors were sued yesterday by a shareholder who alleged that they mismanaged the company in its dealings with Enron Corp.
The lawsuit was filed in U.S. District Court in Manhattan by a stock owner on behalf of the second-largest U.S. bank. It seeks a court order voiding the election of J.P. Morgan's board members and a declaration that the officers breached their fiduciary duty to the bank. The complaint also seeks monetary damages.
Harrison and the board members are accused in the lawsuit of helping Enron structure the off-balance-sheet partnerships and other special-purpose entities that helped Enron hide its debt from investors. Analysts working for the bank also issued positive reports on the company while insiders knew that Enron's financial situation was deteriorating, the lawsuit says.
The lawsuit says the conduct of Harrison and the board members "has irreparably damaged the reputation of J.P. Morgan and caused a massive diminution in the value of J.P. Morgan."
A spokeswoman for J.P. Morgan, Kristin Lemkau, declined to comment on the lawsuit, saying the bank has not yet seen it.
The complaint is one of many Enron-related lawsuits against J.P. Morgan, Citigroup Inc. and other banks that accuse them of helping Enron hide debt and deceive investors.
Morgan Stanley analyst Henry McVey has said that J.P. Morgan may have to pay as much as $2.5 billion to settle shareholder lawsuits.
Both Congress and the Securities and Exchange Commission are investigating whether J.P. Morgan and Citigroup helped Enron hide its mounting debt from investors. The bank contends it acted properly in its dealings with Enron.
J.P. Morgan wrote off $3.31 billion in bad loans in the nine months that ended June 30. Almost 7 percent of that - $221 million - consisted of credits to Enron. In a November SEC filing, J.P. Morgan said it may lose as much as $1.59 billion more from its Enron transactions.
The bank is trying to recover $965 million from 11 insurance companies that guaranteed natural gas and oil contracts that Enron failed to honor after it filed for bankruptcy in December.
A trial on that issue is scheduled to begin Monday in the same court.