Insurers accuse Morgan Chase of fraud

JP Morgan Chase, the battered Wall Street investment bank, was delivered another blow last night when it lost an attempt to force 11 insurance companies to honour $965m (£678m) in bonds related to failed firm Enron.

US district judge Jed Rakoff sided with the insurance firms, some of which have launched a countersuit against JP Morgan alleging fraud.

The insurers claim the oil and gas contracts against which they issued the surety bonds masked straightforward loans. The contracts were between Enron and Mahonia, a JP Morgan affiliate.

Judge Rakoff said the insurers had provided enough evidence that the bonds "were the product" of fraud by the second-largest bank in the US, to deny JP Morgan immediate payment. "These arrangements now appear to be nothing but a disguised loan - or at least have sufficient [indications] thereof that the court could not possibly grant summary judgment to the plaintiff."

A JP Morgan spokesman said: "This is a case about a commitment made by the insurance companies and a commitment not kept. We expect to prevail on the merits of our arguments." A trial has been set for December 2.

JP Morgan fell $325m into the red during the most recent quarter as a result of bad debts. The bank wrote off $456m of trading losses and loans to Enron and still has exposure to potential losses of $2.1bn.

It emerged yesterday that a second analyst claims he was fired for issuing a sell recommendation on Enron. Chung Wu, former financial adviser at the Houston office of UBS PaineWebber, said he was fired after emailing the advice to more than 10 clients in August.

In a filing to the National Association of Securities Dealers, Mr Wu wrote: "Enron management was not pleased and due to the employee stock option relationship UBS PaineWebber has with them, the pressure came from my corporate office _ to dismiss me." UBS said Mr Wu was fired for failing to obtain approval before sending firm correspondence to clients.