Bear Stearns can’t seem to go down quietly. The firm is facing a number of lawsuits filed by employees, investors and possibly even civil charges courtesy of the SEC.
In its first fiscal quarter report filed with the SEC yesterday, Bear said net income for the quarter ending February 29 fell to $115 million, or 86 cents per share, from $554 million, or $3.82 per share, a year earlier. Net revenue, after interest expense, declined 40 percent to $1.48 billion. The firm’s overall wealth-management revenues were down; Private Client Services, with its roughly 500 reps, saw net revenues increase 18 percent to $161 million for the 2008 quarter, from $136 million for the 2007 quarter, “reflecting higher levels of fee-based income and commissions.”
That may be the only good news Bear’s quarterly report has to offer. In February 2008, according to the filing, Bear Stearns received a “Wells Notice” from the SEC, stating it may be subject to a civil injunction action and/or an administrative proceeding by the agency. The action is tied to “bidding for various financial instruments associated with municipal securities.”
Meanwhile, employees are suing the firm (and naming executives like former Chairman and CEO Alan “Ace” Greenberg, Chairman Jimmy Cayne and current CEO Alan Schwartz), claiming it violated terms of the Employee Retirement Income Security Act (ERISA.) One complaint, which was filed in a U.S District Court Southern District of New York, says defendants “failed to exercise the required skill, care, prudence and diligence in administering the firm’s Employee Stock Ownership Plan.”
Employees involved in the lawsuit claim that Cayne and the other defendants “permitted the aggressive investment” of partcipants’ money in Bear stock “despite the fact that they clearly knew, or should have known, that such investment was unduly risky and imprudent due to Bear’s serious mismanagement and improper business practices.” (Such practices included concentrating its business on high-risk, mortgage-backed and asset-backed securities and collateralized-debt obligations.)
The bottom line: Plaintiffs claim that Bear and its executives breached their fiduciary duty when they failed to “prudently and loyally” manage employees’ investments in the firm’s stock. The end result: a $325-million loss in retirement savings representing over 8,400 participants or beneficiaries. The court will hold a hearing on April 30 to decide whether or not it will consolidate eight similar suits against Bear Stearns.
But wait, there’s more: A complaint filed last week by California billionaire H. Roger Wang says the firm, broker Joey Zhou and Garrett Bland, a senior managing director in Bear’s Century City office, misled him into buying 150,000 shares of Bear Stock, including 100,000 shares on March 14—the same day the Fed stepped in to keep the firm from collapsing. Wang is seeking $10 million in damages. (Click here for more on that.)