Several large public pension funds are mulling legal action against Bear Stearns Cos. Inc.
Massachusetts Treasurer Tim Cahill will consider legal action against the firm on behalf of the state pension fund if an investigation returns any evidence of securities fraud. Alison Mitchell, spokeswoman for Mr. Cahills office, said the treasurer is looking into the matter as we would look at any investment that drops so significantly. Potential losses to the $51 billion Massachusetts Pension Reserves Investment Management Board are estimated at $24 million, she said.
Meanwhile, New York City Comptroller William C. Thompson Jr. is considering a federal lawsuit against the company, spokesman Mike Loughran said in an e-mail. Outside counsel is reviewing potential securities law fraud claims for losses that could reach millions of dollars based on the 274,000 shares of Bear Stearns stock owned by the $127.9 billion New York City Retirement Systems, Mr. Loughran said.
New York state Comptroller Thomas DiNapoli, sole trustee for the $164.4 billion New York State Common Retirement Fund, Albany, also is exploring all options, including legal action, to protect assets in the fund, said Robert Whalen, spokesman for Mr. DiNapoli.
The Common Fund holds 427,785 shares of Bear Stearns stock and stood to lose as much as $30 million under terms of the original $2 a share buyout deal from JPMorgan Chase & Co. The offer has since been upgraded to about $10 a share. JPMorgan also agreed to buy 95 million Bear Stearns shares, or 39.5% of the outstanding Bear Stearns stock by April 8.
During the week of March 24, the $1.8 billion Wayne County Employees Retirement System, Detroit, and the $4.3 billion Police and Fire Retirement System of the City of Detroit filed an injunction to stop Bear Stearns from selling JPMorgan new shares to boost JPMorgans ownership and ease approval of the sale.
The original $2-a-share offer upset Bear Stearns employees and investors.
Bear Stearns stock had traded at as much as $159.36 a share on April 25, 2007, its 52-week high. Several law firms have filed lawsuits, alleging breach of fiduciary duty by Bear Stearns board and asking for an investigation of the merger talks process.
The law firm of Stember Feinstein Doyle & Payne LLC said it is examining fiduciary conduct relating to Bear Stearns ESOP, profit-sharing and 401(k) plans. Stember Feinstein is looking into whether fiduciaries of the plans knew that Bear Stearns was concealing its large exposure to CDOs and subprime mortgages that has rendered Bear Stearns common stock funds a risky investment for plan participants.
As part of its purchase proposal, JPMorgan said it will absorb the first $1 billion of potential losses associated with Bear Stearns, while the Federal Reserve Bank of New York will fund the remaining $29 billion.