Told you so--SEC looks at Bear Stearns presale disclosures

NY Times:

After the stunning collapse of Bear Stearns, many unhappy investors are directing their anger toward Alan Schwartz, who became the firm’s chief executive just a few months ago. Much of the criticism is aimed at some reassuring comments that he made last Wednesday on CNBC — see the video below — in which he said that the firm’s liquidity position was strong and described a $17 billion liquidity cushion that had “virtually been unchanged” from the end of the year.

Now, it seems that the Securities and Exchange Commission may have some questions of its own.

According to the Associated Press, the S.E.C.’s enforcement arm has sent a letter to JPMorgan Chase, which has offered to buy Bear Stearns, discussing “investigations and potential future inquiries into conduct and statements by Bear Stearns” before the takeover was announced.

Over the weekend, as Bear considered filing for bankruptcy protection, JPMorgan agreed to pay about $240 million in stock for the firm. Only a few weeks ago, Bear’s market value was in the billions of dollars.

It is quite possible that Bear’s liquidity position was strong when Mr. Schwartz made his comments. A run on the bank can happen quickly, creating a cash crunch almost overnight, especially when rumors are flying.

Still, the S.E.C.’s letter suggests that regulators “haven’t ruled out legal action over potentially misleading comments,” the Associated Press said.

...

It appears that Bear's defense will have to be on the run on the bank issue that forced them into the sale and that it was not anticipated when the earlier statements were made. Lawyers better be pulling documents that confirm this now. The SEC may be easier to persuade than plaintiff lawyers who may be jumping on those who were in charge of Bear Stearns.