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Church accuses JPMorgan of mismanagement, self-dealing

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Christ Church Cathedral in Indianapolis 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.

The lawsuit was filed in the U.S. District Court for the Southern District of Indiana in Indianapolis.
 

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  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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