JP Morgan employee files whistle-blower lawsuit

The Greenwich Time

Debra Friedman, Staff Writer
Published 09:57 p.m., Tuesday, July 6, 2010

Two financial institutions are facing allegations of deceptive investment and management tactics after a Greenwich employee filed a lawsuit claiming he was singled out for blowing the whistle on a series of “improper practices.”

The lawsuit, filed Thursday against JPMorgan Chase & Co. by Greenwich resident Kevin Dillon, said that supervisors at the financial giant attempted to force Dillon out of his job after he discovered “highly questionable accounting and management practices” of Highland Capital Management LP, a Texas-based hedge fund that receives support services from JPMorgan, according to the lawsuit.

The 12-page complaint filed in state Superior Court in Stamford states that Dillon observed Highland Capital “artificially manipulating” the net asset value of certain funds by cross-trading assets between Highland hedge funds at settlement prices that were deceptively set, back dating cross-trades to capture a more favorable asset value and placing poor-performing investments in a particular fund called the “Crusader Fund” to shield its other portfolios, among other allegations.

Highland Capital is not named as a defendant in the lawsuit.

“Almost immediately after observing Highland’s improper practices, (Dillon) regularly communicated his observations to the supervisor and told the supervisor that defendant should not continue facilitating Highland’s improper practices,” according to the complaint. “To (Dillon’s) surprise, the supervisor indicated that defendant was aware of Highland’s improper practices and that nothing would be done to remedy the issue.” The supervisor is not named in the complaint.

Highland, a hedge fund managing over $27 billion in funds, according to their website, has been sued by rap music star Jay-Z, who sued for alleged misconduct in February, according to reports.

In July 2009, a group of investors sued Highland in U.S. District Court in Dallas charging that the company was dishonest about clients’ requests to exit certain funds during a time of market turmoil, Reuters reported. That lawsuit also named JP Morgan because investors claimed the bank provided false data while providing accounting services to the investors, according to Reuters.

Highland’s Crusader Fund, which is specifically mentioned in the Dillon complaint, was shut down in October 2008 after assets shrunk and many investors had left the fund, according to Reuters.

Dillon’s attorney, Mark Sherman, of Stamford, declined to comment on the filing Tuesday. JP Morgan also declined comment.

A spokesperson for Highland released a statement Tuesday denying the charges.

“Highland Capital Management is not a defendant in the case and unfortunately, appears to be a pawn in a lawsuit by a disgruntled JP Morgan employee against JP Morgan,” reads the statement. “As it relates to Highland, the plaintiff’s comments are entirely false and misleading. The Funds mentioned have all been audited by PriceWaterhouseCoopers since 2003 and received unqualified audit opinions. Highland will consider whether further action is required against the plaintiff in response to these potential defamatory statements.”

Dillon, who began working for JP Morgan’s Greenwich offices in March 2008 as a client processing specialist, said he enjoyed praise and reviews from his supervisor prior to reporting the improper practices, according to the lawsuit. Dillon was scheduled to receive a $15,000 bonus and be promoted to officer, the lawsuit states. Once Dillon reported his findings, however, the lawsuit states “the supervisor quickly and significantly changed the tenor of his plans for (Dillon.)”

In January 2009, Dillon said his supervisor informed him his bonus would be cut by two thirds and he would not be promoted. In June 2009, Dillon also received a “needs improvement” on his midyear review.

Dillon further claims that in 2009 he was intentionally left out of meetings and had significantly less qualified applicants take a position of authority over him in an attempt to embarrass him, according to the lawsuit.

In addition to the retaliatory action, Dillon cites two examples of “alarming behavior” by his supervisor.

In one instance, the lawsuit details how his unnamed supervisor allegedly discussed with Dillon the “wide array of guns he possessed and described to (Dillon) the violent acts he would commit if anybody crossed him or his family,” according complaint.

In another instance in 2008, the supervisor told Dillon he needed to clean “the mess” that was created by an African-American employee “who the supervisor admitted was hired primarily to combat adverse fallout from previous racial and sexual discrimination suits brought against the defendant because of the supervisor’s acts,” according to the lawsuit.

The issue later reached the Greenwich office’s head of operations who informed Dillon he was aware that the supervisor attempted to get Dillon fired. The head of operations, who is not named, did not take any steps to fix the problem, the lawsuit states.

Instead, the head of operations told Dillon he knew the supervisor was known to have “many guns at his disposal” and recounted how the supervisor “brought one to work” during an incident in which he had fired a former employee, according to the lawsuit.

In January of this year, Dillon sent out an e-mail to several JP Morgan employees including senior managers explaining that JP Morgan was “failing to follow basic accounting protocol in handling some of Highland’s expense accounts,” according to the lawsuit.

In response, company managers told Dillon “not to change the process unless auditors or Highland picked up on (Dillon’s) concerns.”

A spokesperson for the Securities and Exchange Commission, the federal agency responsible for regulating the securities industry, declined to comment on the allegations made in the lawsuit Tuesday. The agency said they do not comment on what triggers their investigations.

Dillon is seeking unspecified compensatory and punitive damages in the lawsuit in excess of $15,000.

Staff Writer Debra Friedman can be reached at 625-4449 or debra.friedman@scni.com
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