Advanta Corporation (NASDAQ: ADVNB) announced Friday that Chase Manhattan Mortgage Corporation , a subsidiary of J.P. Morgan Chase & Co. (NYSE: JPM), filed a Complaint against Advanta and certain of its subsidiaries relating to the sale of the mortgage business to Chase which closed effective February 28, 2001. In its press release, Advanta said that the Complaint was completely unexpected since Chase never engaged in a substantive discussion with Advanta about the issues it is raising in the lawsuit.
The lawsuit was filed in the U.S. District Court in Delaware.
Chase acquired the mortgage operations of Advanta earlier this year for a reported cash price in excess of $1 billion. A recent story in the interactive edition of the Wall Street Journal indicated that the purchase by Chase of the 1,800 employee mortgage operation included a $15.8 billion mortgage loan servicing and subservicing portfolio with over 200,000 customers.
A Reuters story indicated that in its lawsuit, Chase said that Advanta enjoyed a reputation as a top tier performer in the industry when, in reality, Advanta's actual performance would have placed it as a bottom tier performer. Because Advanta's mortgage business appeared more profitable than it actually was, (its) stock price was higher. Chase said it sustained $67 million in damages as a result of Advanta's alleged violation of federal securities laws and has charged Advanta and 12 affiliates with fraud, misrepresentation, and breach of contract.
In December, LendingIntelligence.com reported that Milton Riseman, former president of Advanta Mortgage, was awarded $5.96 million in damages in a federal age-discrimination lawsuit against its parent company. The jury in the U.S. District Court for the Eastern District of Pennsylvania found that Advanta violated the Age Discrimination in Employment Act when it retaliated against Riseman for filing an age-discrimination complaint with the Equal Opportunity Employment Commission in Sept. 1998. Advanta was also found to have breached its contract with Riseman and withheld wages.
Advanta says that it has not been served with the Chase complaint, although it is generally aware of the allegations which its attorneys are reviewing. Advanta claims that it has complied fully with its agreements and the applicable rules. Advanta does not expect this lawsuit to have any impact on its continuing business.