NEW YORK, June 7 (Reuters) - Former Bear Stearns Cos
shareholders who claimed they were misled about the investment
bank's deteriorating health agreed to settle their nationwide
lawsuit for $275 million, four years after the company was
bought by JPMorgan Chase & Co.
The all-cash settlement, disclosed Wednesday night, resolves
claims against Bear and several former executives including
long-time chief executive James Cayne, his successor, Alan
Schwartz, and former chairman Alan "Ace" Greenberg.
Investors led by the State of Michigan Retirement Systems
asked U.S. District Judge Robert Sweet in Manhattan to grant
preliminary approval of the settlement. The defendants denied
wrongdoing in agreeing to settle.
JPMorgan agreed to purchase Bear on March 16, 2008, in an
emergency buyout brokered by the U.S. Federal Reserve, as
fleeing clients were causing a liquidity crunch that drove Bear
to the brink of collapse.
After initially agreeing to pay just $2 per share for Bear,
JPMorgan later consented to pay $10 per share. That was far
below the $170 that Bear shares once commanded. More than $18
billion of market value at Bear was erased.
The settlement covers owners of Bear Stearns stock and call
options, and sellers of Bear put options, between Dec. 14, 2006
and March 14, 2008.
JPMorgan spokesman Joe Evangelisti declined to comment on
the settlement. Lawyers for the former Bear executives did not
respond to requests for comment.
Terry Stanton, a spokeswoman for the Michigan Department of
Treasury, said the state is pleased to settle. The state's
public retirement systems include several pension plans with
nearly $47 billion of combined assets, according to its website.
In a court filing, lawyers for the plaintiffs called the
settlement "an excellent result."
It is unclear how the $275 million payout will be allocated
among the defendants, or how much is covered by insurance.
Bear's outside auditor, Deloitte & Touche, which is a
defendant in the case, was not part of Wednesday's settlement. A
Deloitte spokesman did not respond to requests for comment.
BEAR SAID TO IGNORE, CONCEAL RISKS
The plaintiffs claimed that Bear had "secretly abandoned any
meaningful effort to manage the huge risks it faced" from
subprime and other mortgage-related securities. Such exposure
contributed to the collapse of two in-house hedge funds in the
middle of 2007.
According to the plaintiffs, misleading statements by Bear
Stearns continued to the end, including on March 12, 2008, when
Schwartz told CNBC television he was "comfortable" that Bear
would be profitable that quarter and that liquidity was not
JPMorgan Chief Executive Jamie Dimon had told investors in
May 2008, shortly before completing the Bear purchase, that "we
would not have done it if we didn't think it made sense, but we
are bearing an awful lot of risk."
The accord is the fifth-largest settlement of U.S.
litigation by investors related to the credit and financial
crises, according to NERA Economic Consulting.
NERA said the largest crisis-era settlement is Wells Fargo &
Co's $627 million accord last year with purchasers of securities
from Wachovia Corp, which Wells Fargo later bought.
The next three largest settlements are with Bank of America
Corp's Countrywide and Merrill Lynch units, NERA said.
Judge Sweet in April granted preliminary approval to a $10
million settlement for former Bear employees who lost $215
million from owning company stock in their retirement plan.
The case is In re: Bear Stearns Companies Inc Securities,
Derivative and ERISA Litigation, U.S. District Court, Southern
District of New York, No. 08-md-01963
For State of Michigan Retirement Systems: Javier Bleichmar
of Labaton Sucharow
For Bear Stearns Companies: Brad Karp of Paul, Weiss,
Rifkind, Wharton & Garrison
(Reporting by Jonathan Stempel)
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