A federal judge has given final approval to $294.9 million in settlements with the Bear Stearns Companies, auditor Deloitte & Touche LLP and certain individual defendants to resolve fraud claims stemming from investment losses suffered in the company’s 2008 collapse.
For information on participating in the settlements, please see our Bear Stearns case page.
The State of Michigan Retirement Systems is the court-appointed lead plaintiff in the lawsuit, which accused the defendants of misleading investors about Bear Stearns’ risky exposure to the U.S. housing market and subsequent write-downs to its assets which led to a collapse of the company and its stock. Berman DeValerio is co-lead counsel.
“This is an excellent financial recovery for investors, especially when compared with other lawsuits arising from the subprime mortgage debacle,” said Berman DeValerio Partner Joseph Tabacco, who led the firm’s litigation team with Boston-based partner Patrick Egan. “The State of Michigan deserves credit for playing a very active, hands-on role in the litigation, especially during the lengthy settlement talks.”
Under the proposed settlement in In re Bear Stearns Companies, Inc. Securities, Derivative, and ERISA Litigation, the company and the individual defendants will pay $275 million, with auditor Deloitte & Touche LLP contributing an additional $19.9 million. The Hon. Robert Sweet of the U.S. District Court for the Southern District of New York, gave his final approval November 9, 2012.
Investors had alleged that Bear Stearns and certain of its former executives violated Sections 10(b) and 20(a) of the Exchange Act of 1934 and related rules and regulations, including the U.S. Securities and Exchange Commission Rule 10b-5, which requires that plaintiffs prove that executives intentionally or recklessly misled investors.
According to court documents, the parties needed multiple rounds of mediated negotiations to resolve the dispute. The first mediation session took place in November 2009, while the two sides awaited Judge Sweet’s ruling on the defendants’ motions to dismiss the case. After the judge allowed the case to proceed, plaintiffs’ lawyers conducted extensive discovery – interviewing more than 90 witnesses, engaging experts to assess damages and reviewing 9 million pages of documents – before returning to the negotiating table.
The complaint states that during 2005 and 2006 Bear Stearns knew it was overvaluing assets and improperly assessing the risks for its growing portfolio of mortgage-backed securities, but failed to tell investors about the dangers that risk posed to the company’s financial well-being. That risk grew even more in the spring of 2007 when two Bear Stearns hedge funds collapsed, forcing the company to absorb their investments, which contained $2 billion more in soon-to-be-worthless subprime-linked investment vehicles.
After Bear Stearns’ began writing down its assets in the late fall of 2007, its lenders balked at lending the company money it needed for day-to-day operations. But the company kept making misleading public statements about its financial health.
Bear Stearns’ final act unfolded quickly, according to the complaint. On March 10, 2008, Wall Street began buzzing with rumors about Bear Stearns’ liquidity problems, which the company disputed. On May 29, 2008, shareholders approved the sale of the 85-year-old company to JPMorgan for $10 a share.
Deloitte was Bear Stearns’ auditor during the class period. It signed off on the company’s fiscal 2006 and 2007 financial statements and certified its first three quarterly financial reports in 2007.
The Bear Stearns collapse, which came early in the 2008 global financial crisis, demonstrated the degree to which financial institutions had leveraged their bets on continually rising housing prices in the United States – and the widespread effects that declining real estate would have on the global economy.
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.