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Bear Stearns Lawsuits Already Getting Filed

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One thing that was clear to everyone involved in the deal for JP Morgan Chase to take over Bear Stearns was that there would be lots of litigation. The unusual features of the deal—including JP Morgan’s option to buy the Bear Stearns headquarters even if the deal doesn’t close, the non-solicitation clause, and the option for JP Morgan to purchase 20% of Bear’s shares—amount to an extraordinarily firm lock-up, and the JP Morgan deal team wasn’t shy about mentioning their deal protection on Sunday night’s conference call.
It took less than a day for the first shareholder lawsuit over the collapse of Bear Stearns to be filed in federal court in New York. Coughlin Stoia Geller Rudman Robbins, a San Diego-based law firm, filed a suit yesterday alleging that Bear Stearns and its leaders made false statements about the firm's financial condition and failed to disclose information investors needed to know to evaluate the company's value, the New York Sun reports. The suit seeks certification for a class action on behalf of investors who bought Bear Stearns common stock between December 14, 2006, and March 14, 2008. James Cayne, Alan Schwartz, Warren Spector, Samuel Molinaro, and the chairman of the executive committee, Alan Greenberg are all named as defendants.
As Ted Frank points out on the Point of Law blog, one irony of the shareholder lawsuits is that the expectation of them wound up reducing the payout to Bear Stearns shareholders. “One of the reasons shareholders are getting so little is because of the billions of dollars of litigation reserves JP Morgan has built into the valuation,” he writes. The lawsuits are expected to generate hundreds of millions in litigation costs, and—very possibly—the litigation costs could actually exceed the purchase price JP Morgan plans to pay for the company.
Bear Stearns thoughts [Point of Law]
Amid Bear Stearns Rubble, Lawyers Swoop In [New York Sun]