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Bear Stearns funds' liquidators settle with JPMorgan
August 16, 2013 / 6:36 PM / 4 years ago

Bear Stearns funds' liquidators settle with JPMorgan

Two men walk past the front desk inside of the headquarters of JPMorgan Chase & Co bank in New York, March 15, 2013. REUTERS/Lucas Jackson

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) has reached a settlement with the liquidators for two Bear Stearns mortgage-laden hedge funds whose collapse in 2007 sent waves through the subprime securities market.

A court filing docketed Friday showed the liquidators had agreed to voluntarily drop the long-running lawsuit, which sought to recover at least $1.1 billion in losses.

Terms of a settlement with Bear Stearns Cos, which JPMorgan acquired in 2008, were not disclosed.

The lawsuit was brought by the liquidators for Bear Stearns High-Grade Structured Credit Strategies (Overseas) Ltd and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd.

The suit, filed in U.S. District Court in Manhattan in 2008, accused Bear Stearns Co and the fund’s former managers of failing to properly structure the hedge funds and provide adequate oversight for them.

The lawsuit also accused them of engaging in a “pattern of misrepresentations and deceptive conduct.”

The lawsuit said the actions of Bear and the ex-managers led to the collapse of the hedge funds in 2007, an event the complaint said was considered a precipitating factor in the global financial crisis that followed.

The lawsuit named not just Bear Stearns but also Ralph Cioffi and Matthew Tanni, two former senior managing directors at Bear who managed the subprime mortgage-crammed funds.

Cioffi and Tannin were indicted on fraud charges in June 2008 in connection with the hedge funds’ collapse, which the Justice Department at the time said caused more than $1 billion in investor losses.

A federal jury in Brooklyn acquitted the two men in 2009 in the first major criminal trial to spill out of the U.S. financial crisis.

Cioffi and Tannin agreed in June 2012 to pay $1.05 million to settle a related U.S. Securities and Exchange Commission lawsuit.

Lawyers for Cioffi and Tannin declined comment Friday. Representatives for JPMorgan did not immediately respond to requests for comment.

The hedge funds’ liquidators, Geoffrey Varga and Wlliam Cleghorn, are pursuing a separate lawsuit filed in July against credit rating agencies accusing them of inflating ratings on securities owned by the funds.

The defendants in that case include McGraw Hill Financial Inc’s MHFI.N Standard & Poor‘s, Moody’s Corp’s (MCO.N) Moody’s Investors Service and Fimalac SA’s Fitch Ratings.

The liquidators’ lawyers did not respond to a request for comment on the JPMorgan settlement.

The case is Varga et al v. Bear Stearns Asset Management Inc. et al, U.S. District Court, Southern District of New York, No. 08-03397.

Reporting by Nate Raymond in New York; editing by Andrew Hay

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