Suits blame Simpson Thacher and JPMorgan for $1.5 billion error
Simpson Thacher & Bartlett is facing two lawsuits for allegedly failing to spot an error that caused investors to lose their security interest in a $1.5 billion loan to General Motors.
The suits, filed in Manhattan federal court last Thursday, come after a federal appeals court refused to reconsider a decision finding that the paperwork error extinguished the security interest, report Bloomberg News and Above the Law. Law360 (sub. req.) covered the denial of rehearing in April by the New York-based 2nd U.S. Circuit Court of Appeals.
The new suits, which seek class action status, name as defendants Simpson Thacher and JPMorgan Chase.
According to the 2nd Circuit, the problem originated at Mayer Brown, which represented General Motors, when a partner instructed an associate to draft documents to release JPMorgan Chase’s security interest in unrelated borrowings involving the automaker.
The associate asked a paralegal to search for financing statements documenting the security interest. The paralegal found two correct documents along with a third, which was the financing statement for the $1.5 billion loan by a syndicate of more than 400 lenders for which JPMorgan Chase was the secured party of record. All three security interests were placed for termination.
No one noticed the error, despite review by General Motors, Mayer Brown, JPMorgan, and JPMorgan’s counsel, Simpson Thacher & Bartlett. The mistake was made before GM’s 2009 bankruptcy filing.
The suits claim lawyers at Morgan Lewis & Bockius informed JPMorgan of the error in 2009 after the bankruptcy filing, but the loan participants weren’t told about the ensuing challenge by creditors until May 2015. The loan participants were paid 100 percent of the principal and interest on the loan in July 2009 under a Bankruptcy Court order, and the payout was challenged by the creditors committee that same month.
The suits claim breach of contract, gross negligence and fraudulent concealment by JPMorgan. The complaints also allege malpractice by Simpson Thacher, which allegedly owed a duty both to its client, JPMorgan, and to the lenders for whom JPMorgan was acting as administrative agent.
