JPMorgan accused of fraud over tech company sale
JPMorgan steered a technology company client to sell itself to BlackBerry at a knockdown price because it wanted to win lucrative future investment banking business from the smartphone pioneer, according to an investor lawsuit.
The lawsuit filed on behalf of some shareholders of Good Technology, a security software provider, accuses the bank of committing “fraud on the board” over the advice it gave when directors were debating whether to pursue a public listing or a sale in 2015.
Good, once a “unicorn” valued at more than $1bn, was sold to BlackBerry in September 2015 for just $425m, amid a cash crunch.
The suit, which raises questions over potential conflicts of interest in such “dual-track” processes, alleges JPMorgan mishandled the planned initial public offering and then dismissed other buyout offers and rescue financings for Good Technology because it wanted to build a relationship with the much larger company. Under chief executive John Chen, BlackBerry has been moving out of smartphones to focus on software.
After the deal was signed, Jennifer Nason, JPMorgan’s global chair of technology, media, and telecom banking, wrote to colleague Curt Sigfstead: “Fantastic result! Glad bberry didn’t use [a banker]. Curt — we should have Jamie [Dimon, JPMorgan chief executive] call/email Chen,” according to the lawsuit.
Good Technology’s common shareholders are also suing the company’s board and management, accusing them of breaching their fiduciary duties in selling Good Technology at an unfair price. JPMorgan was the tech group’s lead financial adviser in 2015 and is accused of aiding and abetting the management and board’s breach of duty.
The bank, in court filings, has denied wrongdoing. A spokesperson declined to comment.
Attorneys for the directors did not respond to inquiries. Good Technology which is not a defendant, says that contractual provisions prevent the shareholders from bringing their action. A trial is scheduled to begin in the Delaware Court of Chancery in June.
JPMorgan earned a fee of just over $4m in the sale to BlackBerry. Its lead position on Good Technology’s $100m IPO likely would have netted it only $2m, the shareholders contend.
Cristina Morgan, a vice-chair in the technology banking group at JPMorgan and the relationship manager for the Good account, wrote in an early 2015 internal email, recently disclosed in a court filing: “The important assignment here [at Good] is the M&A engagement so whatever we have to get that matters.”
Ms Morgan, in a recent deposition, was asked by the suing shareholders if IPOs were a loss leader for JPMorgan. She responded that “IPOs are a loss leader for all banks”.
JPMorgan did not share its candid views about the risks of an IPO planned for March 2015, the suit also claims. The bank had private doubts about successfully completing a listing before the company’s first-quarter results were published, the lawsuit says.
The shareholders also accuse the bank of dismissing other buyout offers, including an $825m preliminary bid in the spring from CA Technologies. CA, unlike BlackBerry, did not contemplate retaining Good Technology’s chief executive, Christy Wyatt, who had helped hire JPMorgan.
One private equity investor that was interested in investing in Good Technology wrote in an internal email after the acquisition was announced: “I’m shocked it went that low. I am really disappointed they signed exclusivity so early with BlackBerry. JPMorgan and/or Board just totally ignored us.”
One of Good Technology’s venture capital backers wrote in an email after the sale that the price reflected the cash crunch the company had run into, as the months ticked away. “BlackBerry got an absolutely fire sale fantastic deal because the company couldn’t have made payroll next week…….ugh.”
In summer 2015, after the IPO was pulled and CA offer rebuffed, Riverwood Capital, another Good Technology’s investor, wondered in an internal email about JPMorgan’s capability. “Certainly not clear that JPM is best equipped to do this [advise Good], definitely feels like it could yield a result that is not good for our interests . . . Did [JPM] turn over all stones and find nothing there?”