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Category Archives: Bear Stearns

Policing Wall Street

The hype surrounding the movie “The Wolf of Wall Street” – which chronicles the rise and fall of broker-turned-investment swindler Jordan Belfort – shines yet another spotlight on the inner-workings of Wall Street and, specifically, what is and isn’t being done to protect investors from fraudsters like Belfort.

Last year, Frontline addressed this very subject in a documentary to mark the fifth anniversary of the global financial crisis of 2008. Titled The Untouchables, the documentary explored a number of questions. Among them: Why had no major bank or top executive been found criminally liable and prosecuted for the crisis or the fraud tied to the sale of toxic mortgages? Why were federal prosecutors so reluctant to act on credible evidence that Wall Street knowingly packaged and sold bad mortgage loans to investors? Are banks simply too large to prosecute and therefore too big to jail? Will Wall Street ever be held accountable for its wrongdoings and excessive risk taking?

Following interviews with top prosecutors, government officials and industry whistleblowers, Frontline reveals that many Wall Street bankers ignored pervasive fraud when buying pools of mortgage loans. Tom Leonard, a supervisor who examined the quality of loans for major investment banks like the now-defunct Bear Stearns, said bankers instructed him to disregard clear evidence of fraud. “Fraud was the F-word, or the F-bomb. You didn’t use that word,” said Leonard. “By your terms and my terms, yes, it was fraud. By the [industry's] terms, it was something else.”

Former Sen. Ted Kaufman (D-Del.) was one of the individuals who was determined to see bankers punished for their bad behavior and their involvement in the financial crisis.  “I was really upset about what went on Wall Street that brought about the financial crisis,” Kaufman recalls. “That doesn’t happen if there isn’t something bad going on.”

As the documentary shows, Kaufman became increasingly frustrated by the lack of criminal prosecutions and left office in 2010.  Meanwhile, Jeff Connaughton, Kaufman’s chief of staff, remains convinced that the U.S. Department of Justice never made prosecuting Wall Street one of its top priorities. “You’re telling me that not one banker, not one executive on Wall Street, not one player in this entire financial crisis committed provable fraud?” asks Connaughton in the documentary. “I mean, I just don’t believe that.”

Given the heightened attention that the movie, The Wolf of Wall Street, is creating about the greed and excesses of Wall Street, if you missed The Untouchables last year, it may well be worth your time now. You can view it online here.

Bear Stearns $275M Settlement Gets Judge’s OK

U.S. District Judge Robert Sweet has given final approval to the $275 million settlement between former Bear Stearns Cos. shareholders and JPMorgan Chase & Co., which bought Bear Stearns in 2008 just as the investment bank faced financial collapse.

The settlement brings to a close years of litigation between Bear Stearns, former executives of the investment firm and investors led by representatives of Michigan’s state pension funds.

Bear Stearns first agreed to the all-cash $275 million settlement in June. The money, minus legal fees, will go to shareholders who accused the company of issuing “materially false and misleading statements” about its financial results. Bear Stearns’ auditor, Deloitte & Touche, agreed to pay $19.9 million.

Shareholders initially filed a series of lawsuits against Bear Stearns beginning in 2008. Among other things, the lead plaintiff in the case claimed that Bear Stearns management had masked the firm’s failing financial health during the last year and a half of existence. During that time, Bear Stearns saw the collapse of two internal hedge funds because of deteriorating mortgage securities. Those investments are now viewed by many financial experts as one of the first key signs of the financial crisis that was to come.

 

Bear Stearns Criminal Trial Nears Conclusion

Ralph Cioffi and Matthew Tannin, the two former Bear Stearns executives who are on trial for allegedly lying to investors about the fiscal health of two hedge funds, will soon find out their fates. On Nov. 9, the month-long trial comes to a close, and a jury will begin deliberations on the charges of securities fraud, wire fraud, conspiracy and insider trading brought by the Office of the United States Attorney for the Eastern District of New York against the two men.

The charges against Cioffi and Tannin are tied to the management – and eventual implosion – of two Bear Stearns hedge funds known as the Bear Stearns High Grade Structured Credit Strategies Fund and the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Fund.  Prosecutors contend Cioffi and Tannin told “black and white lies” to investors about the financial state of the two funds despite the fact they were seeing some of the worst market conditions on record.

Over the course of the past few days, prosecutors and defense counsel have presented their closing statements to the jury – and the differences in their approach are notable.

Assistant United States Attorney Ilene Jaroslaw provided the jury with a methodical chapter and verse of the mountain of lies and web of deception that resulted in more than $1.5 billion of investors’ capital being wiped out.  Meanwhile, counsel for Cioffi and Tannin responded in a way that can best be summarized as the “you should believe us and trust our interpretation of the facts because we’re Wall Street” defense.

Whether such a defense will resonate with members of the jury remains to be seen – as does the obvious question as to why Cioffi and Tannin chose not to testify in their own defense if, in fact, they had a plausible explanation for the explosive emails that are at the core of the government’s case.

We may never know that answer. But if we’ve learned one thing from the recent crisis on Wall Street, it’s this: When Wall Street tells us – either directly or through its hired guns – that we can and should trust it about anything, it’s a sure sign we need to button the pockets on the back of our pants and secure our wallets.  And fast.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.


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