The Initial Fallout From Bear Stearns
In light of recent events with the financial markets, it would seem essential to at least mention something about Bear Stearns. Despite the best efforts of the media, we don't really have all of the facts yet but I did find a couple of tidbits in the news that were interesting.
First, Dow Jones is reporting that on March 19, the company made a filing with the SEC that amended the company bylaws to allow Bear Stearns to reimburse its employees for the costs of defense for suits filed against them in any individual capacity. At least two lawsuits have been filed already. One class action suit has been brought on behalf of Bear Stearns employees. The second is a class action suit filed by investors alleging that the company made false and misleading statements regarding the status of the company and deliberately inflated the stock price. Both cases have been filed in the Southern District of New York.
Second, it looks like the Bear Stearns ESOP participants are preparing a lawsuit associated with the company improperly continued to offer and retain company stock when it was no longer prudent to do so. Clearly a concern of that suit would be whether the plan should have sold stock to protect the overall value of the plan's assets. We saw a similar type of action in the Enron collapse, so this type of action is not unexpected.
I would not surprised if there are other lawsuits being considered, particular by larger defined benefit plans that were heavily invested with the company and I expect it will be some time before a clear picture of the impact of this situation is developed. In the mean time, my suggestion to employers with plans that have been impacted by this crisis should make it a point to speak with their financial advisers to see what steps would be prudent to protect their own plan participants.
