Access Complaint against JPMorgan Chase

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK CMMF, LLC,Plaintiff,-vs-J.P. MORGAN INVESTMENTMANAGEMENT, INC. and TED C.UFFERFILGE,Defendants.)))))))))))))))Index No. _________ COMPLAINT

Plaintiff CMMF, LLC (“CMMF”), by its attorneys Quinn Emanuel Urquhart Oliver &Hedges LLP, for its Complaint against J.P. Morgan Investment Management, Inc. (“JPMorgan”)and Ted C. Ufferfilge (“Mr. Ufferfilge”), alleges as follows:

Nature of the Casei.

CMMF, a master feeder fund created by Access Industries Group(“Access”), hired JPMorgan to manage an enhanced cash investmentaccount on a discretionary basis and paid JPMorgan significant feesfor its services. JPMorgan appointed Mr. Ufferfilge to manage CM-MF’s account. In setting up the account, CMMF clearly communic-ated and established, among other things, conservative investmentobjectives, specific diversification requirements, a low-risk 3-monthLIBOR performance benchmark, and its anticipated liquidity re-

quirements. CMMF did so because, as JPMorgan knew, funds main-tained in CMMF’s account were needed on short notice for various business purposes and CMMF’s principal goal was to ensure that itsfunds would be invested in ways that would preserve CMMF’s li-quidity and principal while achieving the conservative performance benchmark. CMMF’s benchmark and the various diversification andother requirements applicable to JPMorgan’s management of CM-MF’s account were set forth in an Investment Management Agree-ment (“IMA,” attached hereto as Ex. A), as well as in a set of Invest-ment Guidelines for Enhanced Short Term Fixed Income(“Guidelines,” attached hereto as Ex. B), which were incorporatedinto the IMA. In breach of JPMorgan’s contract with CMMF, and in breach of JPMorgan and Mr. Ufferfilge’s duties to CMMF, JPMor-gan and Mr. Ufferfilge implemented a series of ill-conceived invest-ment strategies that exposed CMMF to risks well beyond those thatwere reasonable in light of CMMF’s conservative objectives and benchmark and that were inconsistent with CMMF’s liquidity re-quirements. This action arises out of JPMorgan’s breach of its con-tract with CMMF, and JPMorgan and Mr. Ufferfilge’s negligenceand breaches of fiduciary duty in managing CMMF’s account.

ii.

As sophisticated investment advisors, JPMorgan and Mr. Ufferfilgeknew that there were a range of investments available that wouldachieve CMMF’s 3-month LIBOR benchmark, as well as CMMF’sother investment objectives. Nevertheless, despite their duty to con-trol CMMF’s risk exposure and to ensure that CMMF’s liquidity re-quirements could be met, and despite CMMF’s specific instructionsto not concentrate its investments in any one sector, JPMorgan and2

Mr. Ufferfilge made the reckless and unnecessary decision to satur-ate CMMF’s portfolio with the

riskiest and most illiquid

residentialreal estate securities—subprime and Alt-A loans. As JPMorgan andMr. Ufferfilge knew, such investments carried substantial undis-closed risks of deterioration in value and underperformance of re-turns, as well as substantial liquidity risks. JPMorgan and Mr. Uffer-filge made this decision, moreover, despite the fact that market indic-ators and JPMorgan’s own parent company recognized as early asthe fall of 2006 that the prudent reaction to the declining real estatemarket was to unload residential real estate investments as quickly as possible. JPMorgan and Mr. Ufferfilge took the opposite course withrespect to CMMF’s portfolio, and instead chose to increase CMMF’sresidential real estate exposure by continuing to purchase securitiesconnected to the residential real estate market through the summer of 2007. Thus, unbeknownst to CMMF, companies affiliated with JP-Morgan were themselves simultaneously ridding their own invest-ment portfolios of risky subprime and other mortgage-backed secur-ities, and had begun doing so even as JPMorgan was initiating andmaintaining CMMF’s investments in these same products.

iii.

In the summer of 2007, CMMF noticed significant losses in its port-folio and began to express concern. In the fall and winter of 2007,CMMF continued to express concern about the losses it was incur-ring. JPMorgan and Mr. Ufferfilge repeatedly assured CMMF thatits investments were only of the highest credit quality, that the secur-ities in its portfolio were backed by government agencies that guar-anteed the repayment of principal in the event of default of the un-derlying collateral, and that the securities were trading below their 3