* American Century wins arbitration
* Award made in August, unveiled Wednesday
* JPMorgan disagrees with arbitration award
By Jonathan Stempel
March 22 JPMorgan Chase & Co quietly
paid $384 million to American Century Investment Management
after losing an arbitration over alleged breaches related to the
bank's purchase of a retirement plan services business.
A panel of the American Arbitration Association said
JPMorgan's asset management unit deliberately violated a
contractual agreement tied to the 2003 purchase from American
Century, by promoting its own funds at the expense of American
That JPMorgan unit had been overseen by Jes Staley, who now
heads JPMorgan's investment banking operations. He is often
mentioned by analysts as a possible successor to Jamie Dimon as
chief executive of the largest U.S. bank.
"JPMorgan breached the contract over and over again," the
arbitrators concluded in a 72-page decision. "Evidence that
compels this finding and conclusion of the one-sided sales and
marketing support given to JPMorgan Asset Management and its
funds is voluminous."
American Century, based in Kansas City, Missouri, won the
arbitration ruling on Aug. 10, 2011. A Missouri state court
confirmed the award on Dec. 6.
The matter remained confidential until JPMorgan agreed to
its disclosure on Wednesday. JPMorgan's payout includes the
$373.3 million arbitration award plus interest.
In a statement on Thursday, the New York-based bank said it
paid the award in 2011, and accounted for it as a "non-client
litigation" expense in its results for last year's third
"We disagree strongly with the arbitrators' decision and
award, because among other things, it misinterprets the
contract, ignores facts favorable to us such as the performance
of certain American Century Funds during the period in dispute,
and ignores expert opinions that were favorable to us,"
spokeswoman Kristen Chambers said in an emailed statement.
American Century is pleased with the award. "Justice was
served," spokesman Chris Doyle said. The privately-held company
now has about $120 billion of assets under management.
STACKING THE DECK
According to the panel, JPMorgan agreed to promote the
American Century funds when it bought Retirement Plan Services,
which handles 401(k) plans for employers, from American Century.
But JPMorgan, which held a large minority stake in American
Century's parent, had long wanted to buy the entire company, the
Some of the bank's personnel figured that if American
Century funds performed worse, that company's value might fall,
making it cheaper to buy, they added.
Over time, JPMorgan "stacked the deck" against American
Century by pushing in-house funds, encouraging customers to swap
out of American Century funds, and awarding bonuses for selling
JPMorgan products, the arbitrators said.
Employees were "informed by an understanding ... that sales
and promotion of JPMAM products were more beneficial to their
careers than sales and promotion of ACI or other managers'
products," the arbitrators said.
Staley also came in for criticism. The arbitrators said he
wore "dual hats" by sitting on the board of American Century's
parent, American Century Cos, even as he was charged with
boosting profit at JPMorgan Asset Management.
JPMorgan held a 41 percent stake in American Century until
August, when it sold that stake to Canadian Imperial Bank of
Commerce for $848 million.
The case is American Century Investment Management Inc v.
JPMorgan Invest Holdings LLC, Circuit Court of Jackson County,
Missouri, No. 1116-CV21103.