The suit, entitled Eastside Holdings, Inc. v. Bear Stearns Cos. Inc. et al., No. 08-CV-2793 (S.D.N.Y. Mar. 17, 2008), accuses Bear Stearns of making false and misleading statements and omissions in its public filings about the risks it had assumed from its mortgage related investments. In particular, the complaint accuses Bear Stearns and certain of its officers and directors of violating Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by concealing from the investing public during the Class Period (December 14, 2006 through March 14, 2008) that: (a) Bear Stearns subsidiaries and employees who managed its high-yield funds were permitted to withhold from the investing public the risks associated with the funds’ underlying mortgage-related investments; and (b) Bear Stearn’s public statements during the Class Period were materially false and misleading because they failed to inform the market of the “ticking time bomb in [Bear Stearns’] hedge funds due to the deteriorating subprime mortgage market.”
Three almost identical actions have since been filed in the United States District Court for the Southern District of New York. We anticipate that those actions will be consolidated with the Eastside Holdings action when a lead plaintiff is appointed under the Private Securities Litigation Reform Act of 1988.
As readers may know, Bear Stearns announced last month that it was being acquired by rival JPMorgan Chase & Co. for just $2 per share, despite having traded as high as $93 per share just a month earlier. Eventually JPMorgan increased the price to $10 per share, but not until after shareholders filed a federal securities class action suit claiming that Bear Stearns had misrepresented its financial condition in its public statements by failing to disclose problems it faced as a result of the subprime crisis.
The original JPMorgan offer came just two days after Bear Stearns announced that the Federal Reserve and JPMorgan had provided an emergency loan to Bear Stearns based on $30 billion in collateral put up by the bank. When JPMorgan announced on March 16, 2008 that it planned to purchase Bear Stearns for $2 per share, it explained that the deal included a $29 billion line of credit from the Federal Reserve Bank of New York, using as collateral the $30 billion in assets described above. The deal came as a tremendous surprise to Wall Street, where Bear Stearns’ stock had previously traded at around $150 per share in April 2007 and, as noted above, had traded at around $93 per share as recently as February 2008.
Immediately following this announcement, on March 17, 2008, shareholders filed the federal securities class action, which led to JPMorgan increasing its offer price on March 24, 2008 to $10 per share.
We will continue to monitor these actions and report any new developments here on www.InsureReinsure.com.
