NEW YORK (Reuters) --
Plaintiffs in one of the biggest
U.S. investor lawsuits
stemming from the financial
crisis got a boost from a
judge, who said a case against
fallen investment bank Bear
Stearns and its outside
auditor, Deloitte & Touche,
can go forward.
The decision means that one-time Bear Stearns
investors can move ahead with a proposed
securities class-action fraud case, though the
judge threw out two related lawsuits that had
been rolled into the litigation. The investors
accuse former Bear chiefs of painting a wildly
misleading picture of the firm's finances ahead of
its March 2008 unraveling.
Among the defendants is former Bear chief risk
officer Michael Alix, who joined the Federal
Reserve Bank of New York in November 2008 as
a top bank regulation adviser. Alix's lawyer was
not immediately available to comment.
Representatives from JPMorgan Chase & Co,
which bought Bear Stearns at a bargain price at
the start of the credit crisis were also not
immediately available for comment.
"It is important to recognize that in ruling on the
defendants' motions to dismiss, the court was
required to assume that the allegations in the
plaintiffs' complaint were true. At this stage of the
case the court was not permitted to and did not
consider whether those allegations actually are
true or whether the plaintiffs have evidence to
support their allegations," a Deloitte spokesperson
said in a statement.
"Deloitte believes that the claims asserted against
it are meritless and intends to defend this case
vigorously," the spokesperson said.
Bear Stearns disintegrated when the firm faced a
run on the bank following enormous mortgage
losses. Bear became the first investment bank to
collapse in a credit crisis that later claimed
Lehman Brothers and Merrill Lynch & Co Inc.
The fraud case is one of many investor lawsuits
to grow out of the crisis, although plaintiffs in
such cases have typically faced an uphill battle to
prove their claims. Auditing firms so far have
been largely successful in fighting investor
lawsuits, although in this ruling the judge said
Deloitte would also have to remain a defendant
for its role as Bear's auditor.
In his ruling, U.S. District Judge Robert Sweet in
Manhattan refused to dismiss a lawsuit against
plaintiffs led by the Michigan Retirement System,
which held Bear Stearns shares in its portfolio.
That means the fund can continue to press their
claims and possibly bring it to trial.
But the judge tossed out two related cases. One
was a separate investor lawsuit; the other was
brought on behalf of Bear employees who held
the firm's stock in a retirement plan.
The written ruling was made public late on
Friday.
At the heart of the securities fraud case is an
allegation that Bear Stearns and top executives
inflated the investment bank's stock price by
using misleading mortgage valuations to conceal
potential losses in the housing market.
The investors also accuse Deloitte of recklessly
ignoring red flags about Bear's financial
statements and did not adequately scrutinize its
mortgage valuation models. Deloitte's audits
"were so deficient that the audit amounted to no
audit at all," the plaintiffs argued in court papers.
The case is in re Bear Stearns Companies, Inc.
Securities, Derivative, and ERISA litigation, U.S.
District Court, Southern District of New York,
08-1963
Source: Http://reuters.com/article/idUSTRE70M1WR20110123
