* Judge refuses to dismiss purported class-action case
* Two other related lawsuits are thrown out
* Defendants include ex-Bear executives, outside auditor
By Martha Graybow
NEW YORK, Jan 23 (Reuters) -- Plaintiffs in one of the
biggest U.S. investor lawsuits stemming from the financial
crisis got a boost from a judge, who said a case against fallen
investment bank Bear Stearns and its outside auditor, Deloitte
& Touche, can go forward.
The decision means that one-time Bear Stearns investors can
move ahead with a proposed securities class-action fraud case,
though the judge threw out two related lawsuits that had been
rolled into the litigation. The investors accuse former Bear
chiefs of painting a wildly misleading picture of the firm's
finances ahead of its March 2008 unraveling.
Among the defendants is former Bear chief risk officer
Michael Alix, who joined the Federal Reserve Bank of New York
in November 2008 as a top bank regulation adviser. Alix's
lawyer was not immediately available to comment.
Representatives from JPMorgan Chase & Co (JPM.N), which
bought Bear Stearns at a bargain price at the start of the
credit crisis were also not immediately available for comment.
"It is important to recognize that in ruling on the
defendants' motions to dismiss, the court was required to
assume that the allegations in the plaintiffs' complaint were
true. At this stage of the case the court was not permitted to
and did not consider whether those allegations actually are
true or whether the plaintiffs have evidence to support their
allegations," a Deloitte spokesperson said in a statement.
"Deloitte believes that the claims asserted against it are
meritless and intends to defend this case vigorously," the
Bear Stearns disintegrated when the firm faced a run on the
bank following enormous mortgage losses. Bear became the first
investment bank to collapse in a credit crisis that later
claimed Lehman Brothers and Merrill Lynch & Co Inc.
The fraud case is one of many investor lawsuits to grow out
of the crisis, although plaintiffs in such cases have typically
faced an uphill battle to prove their claims. Auditing firms so
far have been largely successful in fighting investor lawsuits,
although in this ruling the judge said Deloitte would also have
to remain a defendant for its role as Bear's auditor.
In his ruling, U.S. District Judge Robert Sweet in
Manhattan refused to dismiss a lawsuit against plaintiffs led
by the Michigan Retirement System, which held Bear Stearns
shares in its portfolio. That means the fund can continue to
press their claims and possibly bring it to trial.
But the judge tossed out two related cases. One was a
separate investor lawsuit; the other was brought on behalf of
Bear employees who held the firm's stock in a retirement plan.
The written ruling was made public late on Friday.
At the heart of the securities fraud case is an allegation
that Bear Stearns and top executives inflated the investment
bank's stock price by using misleading mortgage valuations to
conceal potential losses in the housing market.
The investors also accuse Deloitte of recklessly ignoring
red flags about Bear's financial statements and did not
adequately scrutinize its mortgage valuation models. Deloitte's
audits "were so deficient that the audit amounted to no audit
at all," the plaintiffs argued in court papers.
The case is in re Bear Stearns Companies, Inc. Securities,
Derivative, and ERISA litigation, U.S. District Court, Southern
District of New York, 08-1963
(Reporting by Martha Graybow, additional reporting by Clare
Baldwin; Editing by Bernard Orr)