JPMorgan Chase & Co quietly paid $384 million to American Century Investment Management after losing an arbitration over alleged contractual breaches related to the bank's purchase of a retirement plan services business.  The award includes a $373 million award plus accrued interest. Conducted under the auspices of the American Arbitration Association ("AAA"), the panel concluded that JPMorgan's asset management unit had deliberately violated a contractual agreement tied to the 2003 purchase from American Century, by promoting its own funds at the expense of American Century funds.  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 CEO of the largest U.S. bank. Panel's Decision. "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."  Kansas City, MO-based American Century won the arbitration ruling on 8/10/11, and a Missouri state court confirmed the award on 12/6/11. The matter remained confidential until JPMorgan agreed to its disclosure on Wednesday, 3/21/12.  In a statement on Thursday, JPMorgan issued a statement saying it paid the award in 2011, and accounted for it as a "non-client litigation" expense in its results for Q3 of 2011.  The bank disagreed with the decision, adding:

"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." -- Spokesperson Kristen Chambers, in an e-mailed statement.

Details:  Stacking the Deck. In its written decision, the panel laid out its perceived scenario of the working relationship between JPMorgan and American Century funds.  The panel saw apparent conflicts of interest at play which factored heavily into its decision against JPMorgan.  According to the panel, ...

the bank 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.

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.  Thus, 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.

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."

Jes Staley Also Criticized. The arbitrators said he wore "dual hats" by sitting on the board of American Century's parent, American Century Co.'s, even as he was charged with boosting profit at JPMorgan Asset Management.  JPMorgan held a 41% stake in American Century until August, when it sold that stake to CIBC (Canadian Imperial Bank of Commerce) for $848mn. The case is American Century Investment Management Inc v. JPMorgan Invest Holdings LLC, Circuit Court of Jackson County, Missouri, No. 1116-CV21103. For further details, go to:  [Reuters, 3/22/12].