J.P. Morgan’s Fraud Claims Are Rejected

A federal judge dismissed J.P. Morgan Chase & Co.’s claims of fraud against 11 insurers, dealing a setback to the bank’s effort to collect $965 million for losses on gas and oil trades with Enron Corp.

The insurers, which guaranteed trades between a bank entity, Mahonia Ltd., and Enron, refused to pay when the energy trader filed for bankruptcy protection, saying the deals were shams designed to hide loans to Enron. J.P. Morgan alleged that the insurers knew the trades were a form of financing and fraudulently induced the bank to use surety bonds even though they knew such bonds are not permitted for financial transactions.

U.S. District Judge Jed Rakoff allowed J.P. Morgan to take its breach-of-contract claim against the insurers to trial. He didn’t explain his reasoning for throwing out the fraud claims, which were added to the case in July.

Shares of J.P. Morgan gained 3 cents to close at $22.04 on the NYSE.