Tim Evans

The Indianapolis Star

INDIANAPOLIS — A historic local church, richly endowed by the late Eli Lilly Jr., lost millions of dollars due to JPMorgan Chase and Co.'s self-dealing and mismanagement of two trust funds, according to a federal lawsuit filed Wednesday.

The lawsuit filed in U.S. District Court on behalf of Christ Church Cathedral claims "JPMorgan caused the church trusts to lose approximately $13 million in value."

The suit says the loss resulted from JPMorgan's decisions "to purchase over 177 different investment products, mostly from itself, using church funds because they produced the highest revenues to JPMorgan, to the detriment of Christ Church."

A JPMorgan representative did not immediately respond to a request for comment from The Indianapolis Star. Investment divisions of America's largest bank served from 2004 through the end of 2013 as the trustee over two church accounts valued at more than $30 million.

The lawsuit says the bank "used millions of dollars of church funds to purchase from itself clearly unsuitable investments for the church including private equity funds, structured notes, hedge funds, and other proprietary funds, many of which had no track record of success and were doomed to fail."

Over the course of its 10-year management of the two church funds, the lawsuit says, "the percentage of proprietary products (JPMorgan) purchased from itself on behalf of the church ranged from 68 percent to a staggering 85 percent of the portfolio."

In November, a Marion Superior Court Judge accepted JPMorgan's voluntary resignation as trustee and appointed the newly established Christ Church Cathedral Foundation, Inc., as the new trustee.

Located on the northeast corner of Monument Circle in Downtown, Christ Church was founded in 1837 and is listed on the National Register of Historic Places. It is housed in the oldest structure on the circle and the Episcopal congregation has a long history of philanthropic and spiritual outreach.

The church was the religious home of the Lilly family. Lilly Jr., the grandson of the founder of the pharmaceutical company that bears the family name, grew up in the church. He was baptized there in 1885, sang in the youth choir and served much of his adult life as a lay church leader as he rose to head Eli Lilly and Co.

When he died Jan. 24, 1977, Lilly basically gave the church a tithe from his extensive estate.

"Mr. Lilly's will reflected his dedication to Christ Church and downtown Indianapolis, providing that (after various bequests and payments), ten percent of the remaining estate would be set aside in three trusts for the benefit of Christ Church," the lawsuit says.

"He directed that this bequest to Christ Church be divided into three equal shares which were to be managed by three separate trustees — all Indianapolis banks: Indiana National Bank, American Fletcher National Bank and Trust Company and Merchants National Bank & Trust Company of Indianapolis."

While the church inherited its significant endowment from Lilly, JPMorgan also "inherited" its role as trustee of two of the trust accounts through a series of bank mergers and consolidations. And because of the unique nature of the trust, the lawsuit says, church leaders had little input on how the trust's assets were invested.

During the time JPMorgan managed the church funds, their values ranged from a high of $39.2 million in 2007 to a low of $26.7 million in 2008 and stood at $31.6 million as of Dec. 31.

The lawsuit alleges fraud, breach of trust, violation of state securities law, violation of U.S. Securities & Exchange Commission rules, and breach of fiduciary duty on the part of JPMorgan. The church also says JPMorgan collected fees — referred to in the lawsuit as "kickbacks" — from companies that it invested church funds with but never disclosed those payments or relationships.

The church's problems with the bank's management of the trust funds appear to have started in late 2007, when "JPMorgan began to dramatically change the Christ Church Trusts portfolio," according to the lawsuit.

"The amount and selection of the specific financial products made little sense to the Church's Investment Committee. The portfolio was unnecessarily over-diversified, illogical, and not consistent with a coordinated investment strategy.

"The portfolio also included odd choices in relatively small amounts, such as a $50,000 purchase by JPMorgan from itself of the JPMorgan India Fund using Church Trusts funds, which would be sold just seven months later at a 42 percent loss, for $28,902."

By the end of 2008, that strategy had resulted in the trusts' portfolio decreasing "to $26.69 million ... a loss in value of $13.5 million while JPMorgan's disclosed annual fees had doubled in size," the lawsuit says.

"A staggering 85 percent of Church assets were invested in JPMorgan proprietary and affiliated products," according to the lawsuit.