Well, a second straight year of record earnings meant that Bear CEO James Cayne would be well rewarded in 2005, as his firm brought in $1.5bn in profits. Aside from a salary and bonus, the boss received stock units valued at some $10.3m. Cayne also received options on 56,573 firm shares.
Bear Stearns doesn't usually lose when it ends up in court, but it did recently. The firm was convicted in US District Court on five separate counts of fraudulent and negligent representation pertaining to advise its bankers are said to have given a group of entrepreneurs in 2000. The firm's bankers persuaded the entrepreneurs, who were shareholders in a company which had sold out to ClearDara, to surrender their rights to a $13m payout if ClearData didn't IPO as planned. Bear executives apparently convinced the entrepreneurs to waive their rights on the basis that a private-equity investment of up to $75m would not take place with this side deal on the table.
In the event, just a few months after the entrepreneurs gave up their rights, ClearData filed for bankruptcy. Tom Brown, a lawyer at Orans, Elsen & Lupert's, the firm acting for the entrepreneurs, is quoted saying that 'we got Bear executives to acknowledge under oath that they knew that the private-equity raising was going badly and that there was no real plan to do an IPO'. Bear will now have to fork out $10m in damages.
According to The New York Times, The Securities and Exchange Commission (SEC) last month sued two former hedge fund managers who, it is claimed, were able to capitalize on 'a loophole in a Bear Stearns trading system to place thousands of illegal mutual funds trades at other investors' expense'. The former hedge fund managers, Brent Federighi and Michael Hoffman, are said to have placed over 3,000 late trades in 400 funds using the Bear system. The SEC claim that this activity resulted in a loss of around $49m for the mutual funds and other shareholders.
Finally, the US Federal Trade Commission has asked Bear to provide data and documents in relation to a probe it is undertaking into home loans to risky borrowers. The probe is part of an investigation into predatory lending.