Former Bear Stearns CEO James Cayne personally misrepresented the financial stability of the firm and induced a major shareholder to retain his shares and lose tens of millions when the bank collapsed, says a lawsuit filed in federal court in Manhattan.
Cayne and former Bear Co-President and Co-COO Warren Spector are named personally in the suit, which also includes the firm and auditors Deloitte & Touche as defendants.
Plaintiff Bruce Sherman, former CEO of money management firm Private Capital Management, was often described as Bear’s “largest shareholder” and an “activist investor” and had control over approximately 5.9% of Bear’s outstanding shares.
Sherman was in frequent communication with Cayne and Spector and he now says the two personally assured him that Bear internal valuations were accurate and that Bear’s “risk management strategies protected his investment in Bear from the growing housing crisis.” Cayne and Spector knew their claims were false, Sherman claims.
(We’re buying the first part–the personal assurances. The second part is almost assuredly false. In case Sherman hasn’t noticed, Cayne’s stock in the firm got blown to smithereens, too).
Sherman’s allegations include violations of securities laws and common law fraud. Bear executives misrepresented the health of the company to him to prevent him from selling his stocks, which would be viewed by the press “as a loss of confidence” in Bear, yada, yada, yada.
Boies, Schiller is representing Sherman. Boies partner Richard Drubel told AmLaw Daily that the Sherman suit is the first of “a number” of fraudulent inducement suits the firm plans to file on behalf of shareholders who sustained losses because they held on to their stock. These shareholders are not part of a class action pending against Bear because they did not buy or sell their Bear shares during the relevant time frame.
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