JPMorgan’s acquisition of Bear Stearns is exposing the bank to a host of costly legal issues.
Central to the potential problem is the upcoming criminal trial of Ralph Cioffi (shown here) and Matthew Tannin, two Bear hedge fund managers who allegedly mislead investors about the health of their funds.
Fortune’s William D. Cohan explains.
Fortune: To be clear, the bank has no exposure in the criminal case itself, but the evidence introduced at the trial of Cioffi and Tannin could have tremendous impact on civil litigation pending against JPMorgan
The reason Cioffi and Tannin’s criminal case matters for the ongoing civil litigation is that as testimony and evidence is presented in the criminal trial, the roles of various senior Bear Stearns executives, if any, in the collapse of the hedge funds may be revealed. These revelations could prompt a new wave of civil suits or strengthen pending ones. Also, the greater the role that Cioffi and Tannin’s bosses play in the trial, the more costly the case becomes for JPMorgan.
Already, pending suits against Bear include a billion-dollar claim by activist investor Bruce Sherman and a $2 billion suit brought by Bank of America.
Plus, Jamie Dimon’s shop is responsible for the legal fees of former Bear CEOs Jimmy Cayne, Alan Schwartz, Alan “Ace” Greenberg, and Warren Spector, the former co-president.
And there could be more, depending on how many aggravated Bear investors decide to file suit.
Still, given that JPMorgan paid, all-told, about $13 billion for the firm, whatever legal fees are incurred will be unlikely to sour the purchase. As Cohan says, “it’s a deal JPMorgan would probably do again.”
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