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Church accuses JPMorgan of mismanagement, self-dealing

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Christ Church Cathedral has filed a federal lawsuit against JPMorgan Chase, alleging the bank's "intentional mismanagement" and "self-dealing" led to $13 million in losses in church trust accounts endowed in the 1970s by Eli Lilly Jr.

The church, which occupies the oldest structure on Monument Circle, said the bank from 2004 to 2013 invested its money in 177 different investment products, including "high-risk, high-cost, opaque, unsuitable and poorly performing investments."

Between 2004 and 2007, the value of church trusts managed by the bank ranged from $35.4 million to $39.2 million. By December 2013, after the stock market had shot higher, the trust's value had dropped to $31.6 million.

Meantime, the bank's fees increased 475 percent. The suit notes that the church's annual fee to JPMorgan rose from an average of $35,000 to $177,800. The church has paid more than $1 million in fees to the bank.

"At the very highest levels of JPMorgan, decisions were made to steer clients to JPMorgan products regardless of the damage which could result to beneficiaries such as Christ Church," the suit claims. "Most of the financial products found in the Christ Church Trusts' portfolio earned JPMorgan substantial revenues in disclosed and undisclosed fees."

A spokeswoman for JPMorgan said the bank does not comment on lawsuits.

At one point, the suit notes, as much as 85 percent of the church's portfolio was invested in "proprietary" JPMorgan investments including hedge funds and derivative investment products. In some cases, the church's money provided "seed" capital for new and unproven investment products.

When Eli Lilly Jr. died in 1977, he left 10 percent of his estate to the church, with management of three trusts divided among three local banks. None of the banks still exist; JPMorgan wound up managing two of the trusts after bank consolidation.

"At the time the will was written, banks were typically appointed as trustees to administer estates, collect and safeguard assets, and distribute testamentary bequests," the suit notes. "At the time, banks were prohibited from acting as broker-dealers and investment bankers, did not offer their own financial products other than conservative and transparent investments, and did not have a personal stake or interest in the specific investments."

All of the church's trusts are now managed by the Christ Church Cathedral Foundation, after JPMorgan resigned as trustee in December 2013. But the bank is still manager for some private-equity investments the bank won't be able to close out until 2023, said attorney Linda Pence, who's representing the church.

The church had a total endowment of $67.1 million as of December 2013.

The lawsuit recounts years of conflict between the church's investment committee and JPMorgan. For instance, in 2009, the investment committee asked the bank to reallocate funds into undervalued stocks, but the bank did the opposite, selling stocks to pile into bonds, the suit notes.

The bank also repeatedly pointed out it had full control over investments, as trustee, and refused to take any direction from the church's investment committee.

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  • JPM anti-client group
    A family member was a client there. The change in personnel, Chicago influence, arrogance toward the client, inefficiencies, and over complicated answers to simple questions - makes one wonder how JPM maintains any trust business.
  • JPM
    With $1.6 TRILLION dollars under management do you really think client's get a "unique portfolio tailored to their individual needs"? No. The sales-reps put their clients into products that the higher-ups tell them to - it's called a corporate risk management.. Just ask any former sales-rep or someone who interviewed there. All they do is enter your info into a software program that spits out your "unique portfolio" and then the sales rep makes you feel good as you sign the contract. That's all.
  • Not surprised
    As a former JPMorgan client, I'm not at all surprised by this. The organization has a history of self-dealing. Client accounts are packed full of JPMorgan products and structured notes, all to further benefit the company. A fiduciary culture is completely non-existent. And the bankers are wholly motivated on sales with little concern for the actual needs of the clients. I'd encourage ANY JPMorgan Chase clients to run away as fast as you can. Remember, Bernie Madoff had accounts there an not a single person had the guts to raise a red flag.
  • Chase...
    Chase will rob you blind. I know from working there. They care nothing about their customers except how much money they can make off them. I hope the church wins whatever they are asking!
  • Where I Place My Trust
    My trust is at National Bank of Indianapolis. This is not "native advertising." I would not entrust my money to very many banks, esp. the ones involved in all the subprime mortgages and bad publicity.

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