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Bear Stearns hit with lawsuits over stock value, proposed merger

[JURIST] Beleaguered investment bank Bear Stearns [corporate website] was hit with two major lawsuits Monday in the wake of its announced acquisition [press release] by JPMorgan Chase [corporate website]. The first suit [complaint, PDF], filed in US District Court for the Southern District of New York [official website], alleged that some of the company's officers and directors - including Chairman James Cayne, CEO Alan Schwartz and former CEO Alan Greenberg - publicly misrepresented Bear Stearns's financial health, which artificially inflated the company's market value and caused real economic loss to investors in violation of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 [text]. It additionally requested class action status on behalf of all stockholders who purchased Bear Stearns stock between December 14, 2006 and March 14, 2008. The complaint identified several public statements by the company or its executives during the class period allegedly misrepresenting the "truth about Bear Stearns' exposure to mortgage-related liability, its profitability and its actual business prospects going forward," including an August 3, 2007 press release that addressed Standard & Poor's outlook for Bear Stearns.

Also on Monday, a Bear Stearns employee seeking class action status filed a complaint in the same court alleging that directors breached their fiduciary duties to the company's employees in connection with its employee stock ownership plan. The lawsuit claimed that the directors offered Bear Stearns stock as an option for plan participants and invested retirement funds in Bear Stearns stock despite knowing that the company's stock price was inflated and would result in substantial losses. The complaint also claimed that the company failed to disclose information that employees needed in order to make informed decisions about their participation in the retirement plan. Bloomberg has more. Reuters has additional coverage.

Bear Stearns stock dropped precipitously last week after it was announced that the US Federal Reserve had provided it with emergency funds to avoid insolvency; on Sunday, JPMorgan Chase announced that it had reached a deal with the company to buy it out [merger agreement text, PDF] for $236 million, about $2 per share, a fraction of its prior market price.

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