Bear Stearns Nierenberg Doesn’t Think Cheating Emails are a Big Deal

That lawsuit JP Morgan really really didn’t want you to read has just been unsealed and now we see why they used their big bank status to muscle the courts and keep it out of the public eye. The suit shows Bear executives, who all made millions and got great jobs at other banks when Bear failed, out right stole from their own investors and clients. What‘s worse is JP Morgan covered it up for the last three years.

Today at I report how seasoned traders Mike Nierenberg and Jeff Verschleiser would sell mortgage securities to institutional investors they knew were deafulting in the first few months. Then instead of fixing the bonds during the first 90 days and giving the investors the cash they contractually were owed to make up for the crap loans, they just kept the money for themselves. Last time I looked, that’s a criminal fraud offense and clear violations of securities laws.

When I reached out to Nierenberg, who now has a similar big executive job at Bank of America, and asked his thoughts on the lawsuit his response (via a press person) was – I’m not that worried about it. Yep, he didn’t think the emails from his team calling the bonds they sold pension funds and New York-based insurers like Ambac, a ‘shit breather’ or a ‘sack of shit’, were a big deal. His official response for the story was of course ‘no comment’ but I have to wonder what his Bank of America clients are thinking today. Or if he’s worried JP Morgan will fold to pressure from regulators and ask for a claw back on all the millions of dollars he took home after cheating his own clients. Cause you know he might be kind of bummed if he doesn’t have money to spend on model and bottles like this.

Of course Nierenberg didn’t act alone, Jeff Verschleiser who ran the other half of the Bear trading group, was making sure the bank was also shorting the stocks of the companies they sold products to that were designed to fail. And then bragged in 2007 to his risk committee, run by guys like Ace Greenberg and Waren Specter, that he’d just made double-digit millions off those shorts.

A few months after JP Morgan took over a near bankrupt Bear Stearns, Verschleiser landed in the mortgage department of none other than Goldman Sachs. According to a WSJ blog he even helped his new peers prepare for congressional testimony when it was their turn to defend selling products they thought were shit and designed to lose money.

I’m not sure how JP Morgan will let this case go to trial and not sign a big fat check over to the institutional investors who’ve been suing them for years. According to the unsealed lawsuit one of the Bear traders said in his deposition this summer that ‘shit breather’ was really a ‘term of endearment’ when referring to the toxic bonds. If that’s true then what did they call the financial products they actually liked?


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  1. Teri,

    Excellent reporting. One thing I'm curious about is how did federal officials respond when the whistleblowers referred to in the May 2010 article linked to in today's article, assuming the whistleblowers made the attempt (which I do)? What I continue to find shocking as more acts of criminal fraud come to light is the complete lack of law enforcement.

    • Well the FCIC invited Nick Verbitsky, the doc film maker who has the most footage on this case, down to DC after my 1st story came out last year and I think on Thursday we'll see if they put some muscle behind their mission and ask the AG to charge for fraud. As for as the SEC – I don't know yet what they are going to do but I have learned it takes them a long time to finally charge. They still just don't have the staff to manage all the fraud cases coming forward. It's a sad fact.

      Thanks for reading!

  2. Donald Hames says

    What's worse? It's the collusion between the Wall Street Banksters, Obama and Congress to effectively shutdown prosecution of fraud and give jail time to Wall Street Executives or to come up with an effective banking reform bill that re-regulates or regulates bank holding companies.

    The corruption of the executive and legislative branches by Wall Street is all consuming. Here is a good essay to read:

    Scroll down the article to see the list of politicos who are obligated to financial services and Wall Street Banksters in particular.

    Obama's Attorney General Eric Holder is caught up in seeking prosecutions of the small players in the area of fraud, not the executives who were overseeing the crime.

    Nothing has essentially changed to stop the perpetration of fraud by banksters and traders.

    Only a sudden collapse and bankruptcy of the nation will turn circumstances around and that may be before "The Change We Can Believe In Man" leaves office.

  3. Tavaokoli: No Need to Qualify – This IS a Massive Cover-up of a Control Fraud

    "The bad guys have won, it's almost too late to find our food and wine (5 year statute of limitations for securities fraud). As you rightly point out, those who speak up like William K. Black are marginalized."

  4. David Larsson says

    Thanks for doing your job, Teri. At least some people in your country appreciate it.

  5. Please investigte the Wall Street counterfeiting of stocks story.

  6. rightsideone says

    Teri- were you able to determine whether Bear replaced the loans they put back with others that were deposited into the trust? . If they did (and the transaction may have allowed this) then what these guys did may be permissible or if not completely proper, not fraud. If they did not substititue then you are likely correct in your allegation.

    Also think you have to separate between the sack of shit comment and the alleged actions on the conversion of put back money. While the SOS comments are outrageous and reprehsible, they do not in and of themselves constitute securities fraud. On the other hand if what actually happended is as you allege then that trading desk went over the line and should pay the price.

    • 1) No based on the evidence I've seen in the Ambac case they did not replace the loans. Ambac then asked them to buy back the early payment default loans but they refused. It is my understand that they didn't offer to replace them with better ones either

      2) My The Atlantic story states that it's the Ambac lawsuit that is alleging these charges not me. Ambac put a securities charge into their admended complaint but a judge dismiessed it. He did allow them to add a fraud charge though. Ambac is now appealing that- and there is one more judge that could allow it back into the complaint. Right now it's likely this case will move from federal court to state court.

      Hope that helps.

  7. doesnt exist the perfect crime yesterday something happend when the president enter to do his speech he didnt try to see geithner and he was trying to have eye contact. Dimon is loosing ground and the fraud charges will cost a lot JPM and BAC, they are trying to stop ambac to have a clear ground to show all the evidence but they have win the first battle, i hope ambac can clean the name of the banking industry and give and example and put to jail at least one big fish

  8. Hertha Giffee says

    I really agree with that!

  9. Hey Teri,

    Thanks for responding to my comment on Naked Capitalism. My question, based on some reactions from people in the industry, is how could the funds actually get onto Bear's P&L? Over and above being illegal, how could they recognize the revenue? This would be massive, blatant, fraud involving multiple people from many departments. Certainly possible, but not only is it easy to track/expose, well over the line, i.e. not gray area.

    • Alex – Well that is part of why the Ambac lawyers named Waren Spector & Jimmy Cayne as defendants in their amended complaint. Because yes – at the highest levels they believe the executives knew what Tom Marano was allowing his traders to do. It's also an issue shareholders who are suing the firm now are trying to prove.

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  15. Anthony Fountain says

    “…‘[S]hit breather’ was really a ‘term of endearment’ when referring to the toxic bonds. If that’s true then what did they call the financial products they actually liked?”

    Holy shit?

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