Legal News

Bear Shareholders Already on the Prowl

By Dan Slater

It didn’t take long.

Today, securities-suit powerhouse Coughlin Stoia was again on its game with a shareholder suit alleging fraud by Bear Stearns and its top guns. The suit, filed on behalf of Bear shareholders who bought stock as recently as Friday, claims management misled them about the company’s financial condition.

Jill Fisch, a professor at Fordham University School of Law, thinks the securities-fraud argument “is going to be pretty clear … it’s that we thought that, based on Mr. Schwartz’s comments, we were bottom-fishing, that the stock was going to come back and but for those comments, we wouldn’t have bought the stock.”

She was referring to Alan Schwartz, Bear’s chief exec, who last week was assuring investors on CNBC. “Our balance sheet has not weakened at all,” he said.

What would be the defense? Securities lawyers say they’d argue the credit situation has been so fluid that rosier statements could have been reasonable at the time they were made. Bear did not immediately respond to a call for comment.

Another lawsuit, also filed today in the Southern District in New York, alleges that Bear and its execs breached their fiduciary duties to participants in the company’s employee stock-ownership plan by allowing their retirement savings to be invested in the company’s stock despite knowing such an investment was imprudent.

Another legal issue on the horizon: Is the sale in the best interests of shareholders?

Jake Zamansky, a securities lawyer at Zamansky & Associates who filed cases in August on behalf of aggrieved investors in the two collapsed Bear Stearns hedge funds, says he’s now investigating whether a bankruptcy filing, or another option, would’ve been preferable to the $2 a share deal consummated last night.

Full post as published by Law Blog - WSJ.com on March 17, 2008 (boomark / email).