Posted on 08 Jun 2012
Former top executives at Bear Stearns Cos., including James E. Cayne and Alan "Ace" Greenberg, have agreed to a $275 million settlement of a shareholder lawsuit over the demise of the Wall Street firm four years ago.
The deal with investors led by the State of Michigan Retirement Systems puts to an end the last major dispute surrounding the demise of Bear Stearns, whose near-collapse in March 2008 marked the beginning of the worst period of the financial crisis.
However, Mr. Cayne, a former CEO, and Mr. Greenberg, who was Mr. Cayne's mentor and predecessor, and the other former top executives named in the lawsuit won't have to pay any of the settlement, according to people close to them. The money will come from a $9 billion fund set aside by J.P. Morgan Chase & Co. for litigation and other expenses in 2008, when it bought Bear Stearns in a cut-price deal blessed by the government, these people said.
Bear Stearns had a reputation for sharp elbows and tough practices even by Wall Street's standards, and the tough- talking, cigar-chomping Mr. Cayne epitomized that ethos.
The 2008 lawsuit had accused the executives of misleading investors about the firm's business and financial well-being in the run-up to the financial crisis, including losses in the value of mortgage-backed assets on its books and the company's risk and liquidity positions.
The lawsuit, which was filed almost immediately after the J.P. Morgan takeover, sought to recover losses by investors during the sharp fall in Bear Stearns's share price between Dec. 14, 2006 and March 14, 2008. The investors claimed the bank misled investors over its condition during that period.
In the settlement, which was filed late Wednesday in a Manhattan federal court, the individuals and Bear Stearns denied any wrongdoing. The purpose of the settlement is to "eliminate the burden, expense, uncertainty and distraction of further litigation," the court documents state.
The settlement is one of the largest resolutions of shareholder actions tied to the financial crisis. Two years ago, Countrywide Financial agreed to pay $600 million, and in 2009, Merrill Lynch agreed to pay $475 million to resolve shareholder claims. Last year, Washington Mutual defendants agreed to a $208.5 million settlement. Countrywide and Merrill Lynch were acquired by Bank of America Corp., while Washington Mutual was acquired by J.P. Morgan.
Last month, a federal judge in New York approved a $90 million settlement for investors of Lehman Brothers, who had accused directors and officers, underwriters and auditors of misleading statements and omissions. The settlement was paid out of directors-and-officers insurance without contributions from individuals.
Other executives involved in the proposed settlement include former Chief Executive Alan D. Schwartz, former President Warren J. Spector, former Chief Financial Officer Samuel L. Molinaro Jr., former Chief Risk Officer Michael Alix and former Controller Jeffrey M. Farber.
Terry Stanton, a spokesman for the Michigan Department of the Treasury, said in a statement, "The State of Michigan Retirement Systems are pleased to have reached a settlement agreement with Bear Stearns and other defendants in this matter and are hopeful the agreement will be approved."
The U.S. District Court for the Southern District of New York still has to approve the settlement.
A lawyer for Bear Stearns declined to comment. A lawyer for Mr. Farber, a former Bear Stearns executive vice president, said: "We're glad that this has been efficiently resolved."
Claims against Deloitte & Touche LLP, which was Bear Stearns's outside auditor, weren't part of the settlement, court papers said.