Bear Stearns

Bear Stearns, Deutsche Bank, and Merrill Lynch Among the Wall Street Firms Subpoenaed by New York Prosecutors

Published on: December 12, 2007 | by Shepherd Smith Edwards & Kantas, LLP

New York Attorney General Andrew Cuomo is subpoenaing several Wall Street firms, including Deutsche Bank AG, Merrill Lynch & Co, and Bear Stearns, for information about packaging and selling debt connect to high-risk mortgages.

Prosecutors want to look at the way investment banks review the quality of mortgages before turning them into packaged products that can be sold to investors. They also want to find out how debt is being turned into securities and learn more about the credit-rating firm-bank relationship.

This past summer, mortgage-backed securities affected by growing default and delinquency rates had high debt ratings despite the backing of loans issued to lenders.

Bear Stearns is Charged with Violating Securities Laws in Hedge Fund Case

Published on: November 25, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Massachusetts Securities Division says that Bear Stearns Asset Management Inc. (BSAM) violated securities laws in principal transactions it took part in with two hedge funds that it also advised.

State securities officials filed an administrative complaint against the company earlier this month. In the complaint, Bear Stars is charged with taking part in improper trading activities in the Enhanced Leverage Fund and the Bear Stearns High Grade Structured Credit Strategies Fund. Both funds fell into bankruptcy over the summer.

The complaint claims that BSAM traded securities from its account into the two founds without permission from the client funds’ independent directors. Consent is necessary under state and federal securities laws and BSAM’s own prospectus and representations.

Merrill Lynch, Morgan Stanley and Bear Stearns Suffer Losses as Ratings Agencies Are Grilled over Sub-prime’s

Published on: October 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch will soon report third quarter earnings which analysts have revised downward. An analyst at competitor Goldman Sachs says that Merrill’s earnings for the third quarter will be about $1.80 per share, down from $1.95 and lowered Merrill’s stock price target to $94 from $108. The Goldman analyst predicted that Merrill will have $4 billion in write-downs, primarily from the fixed income division, resulting in a net loss of $1.5 billion for the quarter.

Other analysts’ expectations were even even lower: Fox Pitt Kelton’s analyst lowered earnings per share estimate for Merrill to $1.20, from a previous estimate of $1.91, “while noting that forecasting confidence is low in periods such as these.” He also expected the firm to experience $3.5 billion “in gross negative marks and realized losses” on leveraged loans, CDOs, and mortgages resulting in $2.2 billion in net losses and attributes the more positive net loss estimate to “$700 million in hedging gains; $500 million in loan fees; and $100 million in gains on liability marks.”

Morgan Stanley reported last week that it suffered a 17 percent drop in profit compared to the third quarter last year, earning $1.44, about ten cents below analysts’ estimates, with loan losses of $1 billion the culprit.

Citigroup, Lehman Brothers, DeutscheBank and other Firms Fined for Failing to Deliver Trade Confirmations.

Published on: October 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

NYSE Regulation fined 14 of its member firms a total of $10.4 million in fines for failing to deliver trade confirmations to their clients and other violations.

Citigroup Global Markets received the heaviest fine of $2.25 million for failing to deliver trade confirmation documents in more than a million consumer transactions. Lehman Brothers and DeutscheBank were each fined $1.25 million.

Other firms sanctioned included UBS Securities; Bear Stearns & Co.; Credit Suisse Securities (USA) LLC ; Banc of America Securities LLC; Goldman Sachs & Co.; JP Morgan Securities; Wachovia Capital Markets LLC; and Keefe, Bruyette & Woods Inc. Fines levied against these firms ranged from $375,000 to $800,000.

As Bear Stearns Hedge Fund Faced Liquidation its Head Manager’s Golf Game Did Not Suffer

Published on: July 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

As a sub-prime mortgage hedge fund managed by Bear Stearns encountered margin calls and was on the brink of liquidation, the situation apparently did not faze the golfing of its chief executive, John Cayne.

Weather permitting, Mr. Cayne hops a helicopter from Manhattan to a golf club in Ocean Township, N.J., landing on the grounds. According to posting on an online golf database, Cayne continued to golf through the weeks in June as one of his firm’s hedge funds was evaporating.

On June 14, the day Bear Stearns reported a 10 percent drop in its operating earnings for the second quarter, Mr. Cayne played a round of golf, shooting a 96, according to the online database. The next day, he played again.

Merrill Lynch Seizes $400 Million of Assets from a Bear Stearns Managed ‘Subprime’ Hedge Fund for Failing to Meet Margin Calls

Published on: June 21, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A hedge fund managed by Bear Stearns that takes both bullish and bearish positions in subprime loans has been hit heavily by conditions in that market. Some of the fund’s assets were held at Merrill Lynch, on margin. When the equity in the fund dropped, Merrill issued margin calls.

The hedge fund reportedly began with about $600 million in investor capital, $40 million of that from Bear Stearns and its executives, then borrowed $6 billion from Wall Street lenders, including Merrill, Goldman Sachs, Bank of America and Deutsche Bank.

As the fund’s assets lost market value, the Bear Stearns managers scrambled to sell hundreds of millions of dollars in assets to satisfy demands for cash and assets from creditors to stave off liquidation of the fund. The managers auctioned almost $4 billion in mortgage bonds, and attempted to present a 30-day plan to sell more assets, but was unable to persuade Merrill to refrain from seizing assets.

U.S. Bankruptcy Court Says Bear Stearns Must Pay More Than $125 Million for Collapsed Hedge Fund Fiasco

Published on: February 28, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Bear Stearns Securities Corp. is being ordered to pay over $125 million to a bankruptcy trustee because of Manhattan Investment Fund, a collapsed hedge fund used by hedge fund principal Michael Berger to run a large scale fraudulent investment scam. The ruling was issued on February 15 by the U.S. Bankruptcy Court for the Southern District of New York.

Berger, who was a fugitive and a convicted felon, had created and used the fund through his company, Manhattan Capital Management Inc., to engage in fraud-an action that led to a number of regulatory and criminal actions. The SEC had even filed a securities fraud complaint against MCM, Berger, and Manhattan Investment Fund in January 2000, even obtaining an asset freeze. Two months later, Helen Gredd, the fund’s receiver, filed for Chapter 11 bankruptcy on the fund’s behalf.

According to the court, the fund made 18 transfers, worth approximately $141.4 million in total, in the year before filing for bankruptcy. Funds were transferred from Bank of Bermuda to a Bear Stearns-maintained account with Citibank. The funds were then transferred to a Bear Stearns account and used for securities trading.