The first shareholder action to surface in the wake of the momentous sale of Bear Sterns & Co. Inc. to J.P. Morgan Chase & Co. was filed yesterday in the U.S. District Court for the Southern District of New York. The complaint names as defendants Bear Stearns and certain of its officers and directors, and charges them with violations of the Securities Exchange Act of 1934. More specifically, it alleges that during the proposed class period of December 14, 2006 to March 14, 2008, the defendants issued materially false and misleading statements regarding Bear Stearns’ business and financial results, causing stock to be traded at artificially inflated prices throughout the class period. In particular, the complaint alleges that the defendants failed to inform the market of the liquidity problems in connection with Bear Stearns hedge funds arising from the deteriorating subprime mortgage market.
You can read a copy of the complaint here.
The complaint was filed the same day that Bear Sterns agreed to be sold to J.P. Morgan Chase for $236 million. The sale price amounts to approximately $2 per share, down drastically from Friday’s closing share price of $30.85 and from Bear Stearns’ class period high of $159.36 per share in April 2007. The deal is the culmination of a series of difficulties suffered by Bear Stearns as a direct result of its heavy involvement in mortgage-backed securities, which have since become highly illiquid in the wake of the subprime crisis. In a related and highly unusual move, the Federal Reserve has agreed to provide up to $30 billion in financing for these and other low-liquidity assets held by Bear Sterns in order to facilitate the deal. You can track Bear Stearns’ subprime woes, and the development of subprime issues generally, by clicking here and here.
