GREECE/UK - Greek pension funds have rejected the offer by JP Morgan and hedge fund North Asset Management to repurchase a Greek government structured bond, branded dubious by ministers.

"I can confirm that the pension funds have rejected our proposal," a JP Morgan spokesman told IPE.

On May 24, the investment bank and the London-based hedge fund offered to buy back €280m in structured Greek government bonds sold to Greek investors last year. The extended offer ended yesterday.

JP Morgan and North Asset Management agreed to repurchase 100% of the purchase price less any interest gained on the bond, after it was alleged pension funds overpaid as much as €5m for the bonds, eventually prompting an investigation by the prosecutor.

Pension funds bought the bonds via the Greek broker Acropolis, a company which has since had its licence revoked by the government.

But the 12-year bond - with an initial coupon of 6.25% and underwritten by JP Morgan for the Greek government - had passed through various hands, including German HypoVereinsbank, before ending up in the pension funds' portfolios. North Asset Management bought the bond, before it was issued, from JP Morgan.

According to a source, pension funds were not satisfied with the JP Morgan offer, and had demanded they be compensated for any accrued interest.

JP Morgan declined to comment whether it would make another offer.

The scandal has unfolded over the past few months and has seen the forced resignation of Agapios Simeoforidis as chairman of the Greek Civil Servants' Auxiliary Fund (TEADY) as well as Greece's largest union call a nationwide strike in response to government handling of dubious bond purchases by pension funds.

Yesterday, it appeared prosecutor Antonis Liogas has begun questioning some 25 suspects linked to the case.

According to media reports, Simeoforidis told Liogas the Acropolis brokerage misled TEADY when it recommended investing in the bond.

Representatives of Acropolis are due to testify next week.

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