Bear Stearns thoughts - PointOfLaw Forum

With the share price of Bear Stearns dropping in Enronesque fashion from $170 to $2, less than the value of its skyscraper headquarters, John Carney and others ask: how could the net value of Bear Stearns's business be negative? One of the reasons shareholders are getting so little is because of the billions of dollars of litigation reserves JP Morgan has built into the valuation. (Josh Gerstein, "Amid Bear Stearns Rubble, Lawyers Swoop In", NY Sun, May 18) Ironically, the shareholder litigation, which will generate hundreds of millions of dollars of litigation expense even aside from any settlements in a suit that may well allege billions of dollars in damages, almost certainly has hurt the shareholder recovery. JP Morgan is paying $2 now, and will pay shareholders more later, but the lawyers will take a large commission for the transaction.

Larry Ribstein sensibly asks: "Is there potential [Sarbanes-Oxley] internal controls liability for Bear executives? If not, and melt-downs like this can happen after SOX (worth $80+/share one day, $2 the next), then what was it, exactly, that SOX did for us? Could it be that SOX didn't eliminate risk after all? ... So two possible lessons from Bear: We didn't need SOX, and it didn't do any good." More on Sarbanes-Oxley from Ribstein (and AEI).