(Reuters) - A $275 million settlement has been reached in a nationwide shareholder lawsuit stemming from the near-collapse in 2008 of Wall Street investment bank Bear Stearns Cos.
The all-cash settlement resolves claims that Bear, former chief executive James Cayne, and several other company officials misled investors about the bank's deteriorating financial health before it was acquired by JPMorgan Chase & Co JPM.N.
JPMorgan agreed to buy Bear on March 16, 2008, in an emergency buyout brokered by the U.S. Federal Reserve, as fleeing clients were causing a liquidity crunch that drove Bear to the brink of collapse.
After initially agreeing to pay just $2 per share for Bear, JPMorgan later agreed to pay $10 per share, far below the $170 that Bear shares once commanded. More than $18 billion of market value at Bear was erased.
The lead plaintiff, the State of Michigan Retirement Systems, filed settlement papers Wednesday night with the federal court in Manhattan. It has asked U.S. District Judge Robert Sweet to grant preliminary approval to the accord.
JPMorgan spokesman Joe Evangelisti declined to comment. Lawyers for the plaintiffs, Cayne, his successor Alan Schwartz and other former Bear officials did not immediately respond to requests for comment.
The settlement covers owners of Bear Stearns stock and call options, and sellers of Bear put options, between December 14, 2006, and March 14, 2008.
It is not immediately clear how the $275 million payout will be allocated, or how much is covered by insurance. The defendants denied wrongdoing in agreeing to settle.
Bear’s outside auditor Deloitte & Touche, which was also sued, was not part of the settlement. A Deloitte spokesman did not immediately respond to requests for comment.
The plaintiffs contended that Bear had “secretly abandoned any meaningful effort to manage the huge risks it faced” from exposure to subprime and other mortgage-related securities.
They said the 85-year-old bank’s misleading statements continued to the end, including on March 12, 2008, when Schwartz told CNBC television he was “comfortable” that Bear would be profitable that quarter and that liquidity was not threatened.
“This substantial proposed settlement represents an excellent result” that is “acceptable to the Bear Stearns defendants and reasonable, fair and adequate to the settlement class,” lawyers for the plaintiffs said in a court filing.
JPMorgan Chief Executive Jamie Dimon told investors in May 2008, shortly before completing the Bear purchase, that “we would not have done it if we didn’t think it made sense, but we are bearing an awful lot of risk.”
In April, Sweet granted preliminary approval to a $10 million settlement for former Bear employees who lost roughly $215 million from owning company stock in their retirement plan.
The case is In re: Bear Stearns Companies Inc Securities, Derivative and ERISA Litigation, U.S. District Court, Southern District of New York, No. 08-md-01963.
Reporting By Jonathan Stempel in New York; Editing by Gerald E. McCormick, John Wallace and Matthew Lewis
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