Bear Stearns Sued Over Concealed Mortgage Losses

November 20, 2007 No Comments »

A Bear Stearns shareholder who owns 115 shares of the embattled investment bank and mortgage lender filed a lawsuit against the company late Monday at the U.S. District Court in Manhattan.

Plaintiff Samuel Cohen’s lawsuit claims Bear Stearns knowingly developed a plan to hide its “tremendously risky subprime mortgage portfolio,” and at the same time assured its investors that the company was properly handling its risk.

The lawsuit accuses Chief Executive James Cayne and 16 others, including President Alan Schwartz, Chief Financial Officer Sam Molinaro and other directors of being “well aware of the impending crisis” in the mortgage industry before the truth was revealed in mid-Summer.

Among other things, the complaint seeks damages, improved corporate governance, separating the chairman and chief executive roles, and other changes.

Bear Stearns responded with a statement, saying the lawsuit lacked merit and that it would defend itself accordingly.

It’s not very well known that the company dealt in 100% loan-to-value option arms, among other toxic loan programs.

Shares of Bear Stearns are down roughly 42 percent this year, with its market value falling roughly $10 billion since the beginning of the year.

Analysts expect Bear to report a fourth-quarter loss of $1.36 per share, according to Reuters Estimates, after writing down $1.2 billion related to mortgage losses.

The investment bank’s shares ended the day down 18 cents, or 0.19%, to $93.87, well below its 52-week high of $172.61.

In related news, an AIG shareholder sued several of the company’s officials on Tuesday over the insurer’s exposure to subprime mortgages.

Shares of AIG ended the day down 91 cents, or 1.64%, to $54.44, just above its 52-week low of $53.06.

Leave A Response