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Lehman creditors can question "London Whale" - judge

The entrance to JPMorgan Chase's international headquarters on Park Avenue is seen in New York October 2, 2012. REUTERS/Shannon Stapleton
The entrance to JPMorgan Chase's international headquarters on Park Avenue is seen in New York October 2, 2012. REUTERS/Shannon Stapleton

By Nick Brown

NEW YORK (Reuters) - A bankruptcy judge on Wednesday gave creditors of Lehman Brothers the green light to subpoena former JPMorgan Chase & Co trader Bruno Iksil, the so-called "London Whale," in an $8.6 billion lawsuit against the bank, a Lehman spokeswoman said.

Judge James Peck made the decision at a hearing in U.S. Bankruptcy Court in Manhattan, spokeswoman Kim McLeod said on Wednesday.

The judge rejected arguments from JPMorgan that Iksil had little to do with the allegations in the lawsuit, which centers on JPMorgan's role as Lehman's main clearing bank in the days leading up to its September 15, 2008, bankruptcy.

Lehman and its unsecured creditors' committee accuse JPMorgan of using its access to Lehman to extract $8.6 billion of collateral in the four business days ahead of the Chapter 11 filing.

They argued that Iksil had a "practice of intentional mismarking," and wanted to review trades that led to an "unjustified" $273.3 million collateral call on September 9, 2008, which JPMorgan reversed the next day.

Iksil gained notoriety after his activities were linked to $6.2 billion of trading losses at JPMorgan's Chief Investment Office. The French national had worked in London for the New York-based bank.

In court papers, JPMorgan had argued that getting Iksil involved in the case would waste time and money, particularly in light of statements by former U.S. Treasury Secretaries Timothy Geithner and Henry Paulson that the collateral requests did not cause Lehman to fail.

The bank said Lehman pointed to nothing that shows the bank's Chief Investment Office had any role in the collateral requests at the center of Lehman's lawsuit.

"It is readily apparent that the only real reason for the plaintiffs' interest in taking Mr. Iksil's deposition is that he has been in the news," JPMorgan said in court papers.

Lawyers for both the Lehman creditors' committee and JPMorgan did not respond to requests for comment on Wednesday.

Last April, Judge Peck narrowed but refused to dismiss Lehman's lawsuit, saying the company could pursue claims that JPMorgan had acted in a "commercially unreasonable" manner.

Lehman emerged from Chapter 11 in March 2012. It has said it hopes to repay creditors about $65 billion, a process that is expected to take several years.

The JPMorgan case is Lehman Brothers Holdings Inc et al v. JPMorgan Chase Bank NA, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-03266. The main bankruptcy case is In re: Lehman Brothers Holdings Inc in the same court, No. 08-13555.

(Reporting by Nick Brown; editing by Andrew Hay)

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