Stunned Bear Stearns investors bring legal claims

Mon Mar 17, 2008

By Martha Graybow

NEW YORK (Reuters) - Angry Bear Stearns Co Inc shareholders have wasted no time in bringing legal claims following the company's stunning stock collapse and $2-a-share fire sale to JPMorgan Chase & Co.

At least one federal lawsuit in New York seeking class- action status for alleged securities fraud was filed on Monday by an investor contending the company hid its true financial condition from shareholders.

Also filed was a lawsuit from a company worker who held Bear Stearns shares in his retirement portfolio and says the company failed to properly manage risks in the pension plan. That suit also seeks class-action status.

Other investors may bring cases challenging the company's pact to sell itself for a rock-bottom price, legal experts say. But courts are seen as unlikely to kill the buyout deal.

That is because the venerable investment bank, which agreed to the emergency deal under pressure from the U.S. Federal Reserve as the credit crunch widens, appears to have few other options short of filing for bankruptcy, legal experts say.

Shareholders "could move to enjoin the deal, but that's a tough hurdle," said Michael Kelly, a partner at law firm McCarter & English in Wilmington, Delaware, who specializes in defending corporations in litigation. "I'm sure the board is going to say this is the best option in our judgment."

Another lawyer, Ira Press of class-action firm Kirby McInerney, said "there is a possibility that investors will challenge the fairness of the deal, though I would suspect that at this point, Bear Stearns must be in dire straits" and that's why it agreed to the buyout.

The company is being sold for just $236 million. The deal's value is more than 90 percent below the company's Friday closing share price of $30.85. But JPMorgan said the price tag would total about $6 billion to account for litigation and severance costs.

In a lawsuit filed in U.S. District Court in Manhattan on Monday, investor Eastside Holdings Inc accused Bear Stearns as well as several officers and directors of issuing false and misleading statements that led to massive losses for investors.

The investor is represented by well-known plaintiffs' law firm Coughlin Stoia Rudman & Robbins LLP in San Diego.

Another suit, also in Manhattan federal court, was brought by a participant in the company's employee stock ownership plan. The complaint contends the firm breached its duties to fund investors because it continued "to offer Bear Stearns common stock as a plan investment option for participant contributions when it was imprudent to do so."

A Bear Stearns representative was not immediately available for comment.

Bear Stearns shareholders are exploring all legal avenues, say class-action lawyers who specialize in bringing lawsuits against large companies. A Web site,, set up by law firm Mark & Associates, was offering free legal consultations for Bear Stearns shareholders.

Plaintiffs' lawyers said they have been busy discussing potential claims with investors.

"I can't divulge privileged conversations, but shareholders don't contact me when they are happy with the way things are going with their investments," said Press, of New York-based Kirby McInerney.

"This is a stock that has gone from $50 to $2 literally overnight and I also know of people who had assumed that the worst had passed when it closed at $30," he said.

Another law firm, Schatz Nobel Izard in Hartford, Connecticut, said it has been contacted by both institutional and individual investors who bought the stock as recently as last week.

Some of these buyers, said partner Jeffrey Nobel, took their positions after Bear CEO Alan Schwartz said in a televised interview on Wednesday that the company did not see any pressure on its liquidity and had about $17 billion in excess cash on its balance sheet.

"You have investors who are upset because they feel as though the company was not truthful in reporting its financial condition," he added.

Editing by Richard Chang/Andre Grenon