NYC to probe if Bear Stearns deceived investors

By Joan Gralla

NEW YORK (Reuters) - New York City's comptroller, who helps oversee the city's pension funds, on Tuesday said he will investigate whether the failure of Bear Stearns & Co was due to miscalculation or deception, which could trigger a lawsuit to recover losses.

The drop in Bear Stearns' share price has resulted in a loss for the city's public pension funds of about $10 million, City Comptroller William Thompson told Reuters in a phone interview.

"I think a lot of people are going to be taking a look. ... Was there some deception in there or was this just a miscalculation?" Thompson, a Democrat, said when asked about a possible lawsuit against Bear Stearns.

Massachusetts on Monday had said it was reviewing whether to sue Bear Stearns to recover money it lost as a result of the plunge in the investment bank's stock.

Bear Stearns' market value fell after the bank on Sunday agreed to be bought by JPMorgan Chase (JPM.N: Quote, Profile, Research, Stock Buzz) at a price of $2 a share. On Friday Bear Stearns' stock had closed at $30.85. The shares on Tuesday closed up 22.9 percent at $5.91, suggesting some were closing out short positions or believe the firm could fetch a higher price.

New York City's pension fund has a long history of suing companies it believes defrauded investors. The $110 billion fund Thompson helps run is currently the lead plaintiff in a class-action suit against top U.S. mortgage lender Countrywide Financial Corp CFC.N.

Thompson, a possible mayoral contender, said he does not believe Bear Stearns should be immediately kicked off the city underwriting teams.

"Bear had a very good municipal department," which came up with some innovative ideas, he said. "It's not just the firm, you also look at the personnel and the people who are there," he said, noting JPMorgan also underwrites city debt.