An Indianapolis church has filed a lawsuit against JP Morgan—sole trustee of its endowment from 2004 to 2013—claiming fraud and breaches of trust and fiduciary duty.
The trust’s value fell by 9% while under the bank’s management, according to the complaint. The average small US foundation gained a net 6.5% during roughly the same period, according to Commonfund’s 2013 study.
As assets shrunk, JP Morgan’s disclosed fees climbed more than 400%, the church said, from an annual average of $33,000 to $177,800.
“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.”
When reached by CIO, a bank spokesperson declined to comment on the case.
The firm took over Christ Church’s trust in 2004, following its merge with prior trustee Bank One. According to the lawsuit, stocks and bonds accounted for the majority of then-$34.6 million portfolio, which was “simple and utilized transparent, liquid, risk-adverse investments with reasonable trustees fees and costs.”
In 2006, JP Morgan reportedly informed a church representative that the portfolio would be transferred from its institutional division to the private wealth management group. The following year, JP Morgan is said to have advised the investment committee of its plan to reallocate assets into alternatives, including hedge funds and derivatives, and emerging markets.
Throughout the latter half of 2007 and into 2008, the bank allegedly invested trust assets in its own hedge fund-of-funds, derivative products, and the JP Morgan India Fund—an investment it sold just seven months later at a 42% loss.
Attorneys for the trust served JP Morgan with court papers on August 13. Christ Church is seeking compensation for losses, punitive damages, and legal fees.
Related Content: OCIO Buyer’s Guide: JP Morgan Asset Management