J.P. Morgan Chase and Lehman Brothers Holdings have been charged in a class-action lawsuit for helping hedge fund Canary Capital Partners engage in trading violations that harmed long-term shareholders. Until the lawsuit, both J.P. Morgan and Lehman had managed to stay above the far-reaching mutual fund scandal that has tainted more than a dozen financial service firms with accusations of improper trading activities. The lawsuit was filed in federal court in Baltimore.
The lawsuit combines hundreds of complaints filed after New York Attorney General Eliot Spitzer first revealed that Canary received permission from dozens of mutual funds to engage in improper, rapid-fire trading that reportedly stripped profits from long-term investors.
A previous complaint against Pilgrim Baxter & Associates, which owns the PBHG Funds, maintains that Canary received loans possibly totaling $105 million from J.P. Morgan Securities that financed improper trades in PBHG funds.
Lehman was charged in a separate lawsuit accusing Federated Investors of turning a blind eye toward improper trades in its proprietary funds. The trades in question, the lawsuit contends, were directed by a Lehman employee. Regulators have not charged Federated with improper trading, but the firm has acknowledged the questionable trades.