Marlins future owner Bruce Sherman settles Bear Stearns stock fraud lawsuit

The last remaining Bear Stearns lawsuit being litigated via our federal courts for alleged securities fraud has settled out of court. On September 6th, just a few weeks before the trial was set to begin, billionaire Bruce Sherman signed a settlement that nixed the chance for the American public to see these alleged Wall St bad actors be forced to testify about what they really knew about the problems that caused Bear Stearns failure.

Last year a federal judge in the Southern District of New York, Judge Sweet, ruled Sherman’s case could go to trial after he said there was enough evidence presented in discovery that shows the senior executives running Bear Stearns could have committed shareholder fraud because they knew the bank was failing for a while but encouraged investors like Sherman to buy more stock. The ruling, denying JP Morgan (Bear Stearns successor) motion to dismiss, was a pivotal moment in litigation stemming from the financial crisis. No government agency had made it this far through the legal system to put individuals who worked for the big banks on trial for fraud.

Sherman’s attorney, Philip Korologos, told this reporter, “We are happy with what we got from the settlement.” Which is legal speak for I can’t tell you how disappointed I am we that we didn’t get to grill these Bear Stearns executives on the stand. The reality is Sherman didn’t recover his full losses, a jury didn’t get the chance to award 3 times punitive damages, and maybe he got the million+ in legal fees he spent covered in the settlement.

Last year I sued to unseal the parts of the discovery Attorney Korologos, and his team at Boies, Schiller & Flexner, had unearthed which included enlightening internal emails from Bear Stearns most senior leadership and a private risk analysis evaluation of the bank from the Securities and Exchange Commission. I worked with investigative journalist Roddy Boyd to report an exclusive blockbuster story that showed the Bear Executives had lied to congress when they testified about how and why the bank failed and showed for the first time that top leadership at Bear knew a full year before the bank collapsed that they were in real trouble of failing because of a liquidity crisis caused by their decision to package and sell mortgage banked securities. Bear’s lawyers have insisted since January 2009 that the firm’s operational risks were fully disclosed in numerous public filings and that its management did nothing wrong. But Sherman’s claim cited previously unreleased emails between key Bear executives bluntly discussing its troubled balance sheet and fretting about its declining short-term funding options.

Our reporting rewrote the history we thought we knew about the bank’s failure and with out Bruce Sherman spending his own money to litigating the Bear executives for fraud the public would have never know the truth. The stark truth here is it took a private citizen and journalists to uncover the real cause of Bear Stearns failure not government prosecutors, the Obama administration, or the bank’s regulators.

Because the case settled right before trial this unfortunately means the full testimony taken during discovery depositions from Alan Schwartz, the last CEO of Bear Stearns, will never be made public because of confidentiality agreements in the settlement. Testimony I was told is an amazing historical record of what the last days of Bear Stearns was really like along with the stories of people who tried to help save the bank or destroy it. If the case had gone to trial the testimony would have been made public and I am troubled we will never get to hear it. I am sure JP Morgan’s lawyers at Paul Weiss are patting themselves on their backs for this.

In September 2009 Bruce Sherman, the founder and chief executive officer of Naples, Fla.-based Private Capital Management–it once owned 5.9 percent of Bear Stearns’ shares–sued the bank and a pair of its former senior executives, chief executive officer James Cayne and president Warren Spector. Sherman’s lawyers at Boies, Schiller & Flexner LLP allege Spector and Cayne repeatedly lied to him about the firm’s financial health, especially its valuation and risk management practices. (Sherman is a once revered value investor who sold Private Capital Management to Legg Mason in 2001 for $1.38 billion; he is suing over approximately $13 million of losses from buying Bear Stearns stock in his personal, charitable foundation and escrow accounts.) If Sherman had won his case at trial a jury could have award penalties three times his actual damages because the fraud claim survived the motion to dismiss.

Sherman is back in the headlines now because he is buying a Florida major league baseball team with Derek Jeter. The sales of the Marlins to Sherman and team hasn’t been approved yet and I have to wonder if the additional time and energy of going through with the Bear Stearns trial was something he figured he’d need to save for the baseball team. The reported price tag Sherman is going to shell out for the Marlins is $1.2 billion.

I have reported on the financial crimes committed by Bear Stearns executives since 2010 starting with an exclusive story at The Atlantic that ended up forcing JP Morgan paying a $13 billion government fine in 2013 for Bear Stearns sins and its own misconduct. Bruce Sherman’s trial witness list included Bear’s mortgage backed securities sales team consisting of Tom Marrano, Mike Nierenberg, Jeff Verschleiser. I am terribly disappointed these men won’t be forced to go through a grilling cross examination exploring why they stole billions from their own clients and then pretended Bears mortgage desk risk wasn’t as bad as it they knew it was. All of them have gone on to continue making millions at other financial institutions, were never charged criminally for financial crimes, and appear to have no remorse for their actions.

With the Sherman lawsuit settlement and the statue of limitations running out this year for the DOJ to charge Bear executives this is likely my last story on Bear Stearns. It’s been seven years of staying on the subject even when my peers covering Wall Street had moved on to other stories and main stream media publications weren’t interested in reporting on why the bank really failed. I want to thank my readers for the donations you have made that helped pay for some of the research and legal cost of this reporting. I am most thankful though simply for the fact you read the work and commented on the impact I made.

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