An Indianapolis church has dropped two of five charges against its former outsourced-CIO (OCIO) JP Morgan, which it sued last August following asset losses and fee hikes.
The religious institution voluntarily dismissed its breach of fiduciary duty claim and one count of fraud. It will continue to pursue JP Morgan for alleged breach of trust, constructive fraud, and securities law violations.
The OCIO's disclosed fees climbed by more than 400% as assets shrunk, the church said, from an annual average of $33,000 to $177,000.
“We plan to defend ourselves vigorously against this meritless complaint,” a JP Morgan spokesperson told CIO. “As trustee for client assets, we take our fiduciary responsibility seriously and have established robust governance and controls around such accounts.”
The bank served as sole trustee of the endowment from 2004 to 2013, presiding over a 9% drop in the trust’s value, the complaint stated. The average small US foundation gained a net 6.5% during roughly the same period, according to Commonfund’s 2013 study.
“JP Morgan as a trustee used millions of dollars of church funds to purchase from itself clearly unsuitable investments for the church including private equity funds, structured notes, and hedge funds,” the complaint alleged. “The percentage of proprietary products purchased from itself ranged from 68% to a staggering 85% of the portfolio.”
The bank’s disclosed fees also climbed by more than 400% as assets shrunk, the church said, from an annual average of $33,000 to $177,000.
After the church dropped two of its claims, JP Morgan filed a motion to dismiss two more. Because investment authority and operations had been wholly outsourced, JP Morgan’s lawyers argued that the church cannot rightfully sue for securities fraud. Should the bank’s motion succeed, the lawsuit will move forward with only the breach of trust claim remaining.
Pharmaceutical baron Eli Lilly (1885-1977) endowed Christ Church of Indianapolis in his will, appointing a local bank trustee to the fund. Nearly 30 years later, in 2004, JP Morgan inherited control of the trust after a series of mergers.
Related Content: Former OCIO Client Sues JP Morgan for Losses; The Many Tensions of Outsourcing