Lehman Brothers Holdings Inc on Wednesday sued JPMorgan Chase & Co , accusing the second-largest U.S. bank of illegally siphoning billions of dollars of desperately-needed assets in the days leading up to its record bankruptcy.

The lawsuit filed in Manhattan bankruptcy court accused JPMorgan of using its unparalleled access to inside details of Lehman's distress to extract $8.6 billion of collateral in the four business days ahead of Lehman's September 15, 2008, bankruptcy, including $5 billion on the final business day.

JPMorgan was Lehman's main clearing bank, in which it acts as a go-between in Lehman's dealings with other parties.

According to the complaint, JPMorgan knew from this relationship that Lehman's viability was fast weakening, and threatened to deprive Lehman of critical clearing services unless it posted an excessive amount of collateral.

With this financial gun to Lehman's head, JPMorgan was able to extract extraordinarily one-sided agreements from Lehman literally overnight, the complaint said. Those billions of dollars in collateral rightfully belong to the Lehman estate and its creditors.

Lehman also said JPMorgan officials including Chief Executive Jamie Dimon decided to extract the collateral after learning from meetings with Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson that the government would not rescue Lehman from bankruptcy.

In the widely expected lawsuit, Lehman and its official committee of unsecured creditors are seeking $5 billion of damages, a return of the collateral and other remedies.

JPMorgan spokesman Joe Evangelisti called the lawsuit meritless, and said the bank will defend against it.

Any money recovered could increase the payout to creditors. Lehman has also sued Barclays Plc to recover an $11.2 billion windfall from the takeover of U.S. assets.

In March, a bankruptcy judge approved an accord providing for JPMorgan to return several billion dollars of assets to Lehman's estate, but giving Lehman a right to sue further.

Lehman collapsed after letting its balance sheet swell through exposure to commercial real estate, subprime mortgages and other risky sectors. With $639 billion of assets, Lehman was by far the largest U.S. company to go bankrupt.

EXAMINER REPORT

In his March report on Lehman's bankruptcy, court-appointed examiner Anton Valukas said Lehman could raise a colorable claim against JPMorgan over the collateral demands.

He nevertheless said JPMorgan could raise substantial defenses under U.S. bankruptcy law.

Evangelisti contended that as the examiner's report makes clear, it was the ill-advised decisions of Lehman and its principals to take on perilous leverage and to double down on subprime mortgages and overpriced commercial real estate -- and not conduct by our firm -- that led to Lehman's demise.

Lehman, though, maintained that JPMorgan extracted the collateral to catapult itself ahead of other creditors.

A century ago, John Pierpont Morgan used his position atop the world of finance to shore up a teetering firm and rescue the nation from the brink of financial collapse, the complaint said, referring to the Panic of 1907.

A century later, when the nation faced another epic financial crisis, Morgan's namesake firm stripped a faltering Lehman Brothers of desperately needed cash, it added.

The case is In re: Lehman Brothers Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Jonathan Stempel; Additional reporting by Matthew Goldstein; Editing by Phil Berlowitz, Bernard Orr, Gary Hill)

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