Bear Stearns’ woes from the financial crisis continue to grow. We have noted the prosecution of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin for alleged fraud. Now, as reported by Law.com, Bruce Sherman, CEO and Chief Investment Officer for Private Capital Management, L.P., which held approximately 5.9% of Bear Stearns’ shares, has filed suit in the U.S. District Court for the Southern District of New York against Bear Stearns, former CEO James Cayne, co-president Warren Spector and accounting firm Deloitte & Touche LLP, the complaint for which can be viewed here.
The complaint alleges that Mr. Cayne and Mr. Spector allegedly repeatedly and directly assured Mr. Sherman that Bear Stearns’ valuations and "book value "of its assets were accurate when they allegedly knew that the valuations and book value were materially inflated. Plaintiff alleges that, in July 2007, Mr. Cayne and Mr. Spector allegedly assured Mr. Sherman that the substantial overvaluation of mortgages and mortgage-backed securities owned by two failed hedge funds managed by Bear Stearns (the ones managed by Mr. Cioffi and Mr. Tannin ) did not reflect overvaluation of other Bear Stearns assets, which the Defendants allegedly knew to be false. The complaint alleges that Mr. Cayne and Mr. Spector repeatedly assured Mr. Sherman that Bear Stearns’ risk-management policies protected his investments, which they allegedly knew to be false. The suit also alleges that Bear Stearns allegedly materially and falsely misrepresented the value of its assets in its financial statements, and that Deloitte & Touche allegedly certified the false financial statements.
The complaint alleges claims for violations of Sections 10(b), 18 and 20 of the Securities and Exchange Act of 1394, as well as common law fraud. Mr. Sherman is represented by Boies Schiller & Flexner.