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Bear Stearns to get trial over failed hedge fund
19 Dec 2007

A federal judge has granted Bear Stearns a trial before the prime broker can be ordered to pay nearly $160m (€111m), as the bank's board reportedly considers a succession plan for chief executive James Cayne.

US District Judge Naomi Reice Buchwald in Manhattan said yesterday a "trial will be necessary" to determine whether Bear Stearns acted in "good faith" when it accepted money for a defunct hedge fund.

Buchwald ruled on an appeal of a February order by US Bankruptcy Judge Burton Lifland that Bear Stearns pay nearly $160m to investors in the Manhattan Investment Fund. Lifland had found that Bear Stearns failed to properly monitor the activities of the fund before it collapsed in early 2000.

The fund, run by Austrian-born manager Michael Berger, lost nearly $400m of investors’ money by making wrong bets on Internet stocks during the technology boom of the late 1990s.

The Securities Industry, Financial Markets Association, the Financial Markets Lawyers Group and the International Swaps and Derivatives Association, all supported Bear's appeal.

The fund went bankrupt in 2000 after regulators accused Berger of sending fraudulent account statements. Berger pleaded guilty to criminal charges, but fled the US before sentencing and was captured earlier this year in Austria.

Also yesterday, CNBC's Charlie Gasparino reported that Bear Stearns' board of directors is considering a succession plan for "the first time in years."

Gasparino, citing unnamed sources within the firm, said Cayne's age, health, probes into two hedge funds and Bear's future in mortgage-backed bond trading all contributed to the board's talks. He said president Alan Schwartz is the likely successor.

Separately, Ralph Cioffi, the manager of hedge funds that invested in sub-prime mortgages, has left Bear Stearns amid a probe into whether he withdrew money from two funds before they collapsed in July, Bloomberg reported today.

The US Attorney in Brooklyn and the Securities and Exchange Commission are investigating Cioffi's withdrawal of money from the funds, Bloomberg said, citing three people with knowledge of the matter. The sources said it is part of a broader regulatory review. Investors in the two funds, which filed for bankruptcy in July, lost $1.6bn.

Company spokeswoman Elizabeth Ventura said Cioffi stopped working for Bear Stearns last week, but would not say why he left. A Bear spokesman did not return a message seeking comment on the court ruling and CNBC report.

The Wall Street Journal reported the probe of Cioffi yesterday. He hasn't been accused of wrongdoing by the SEC or the US Attorney.

Bear Stearns expects to report a fourth-quarter a loss tomorrow after writing down $1.2bn in mortgage-related securities.
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AFX News Limited
Bear Stearns CEO CAYNE expected to step down: WSJ
01.07.08, 7:20 PM ET

SAN FRANCISCO (Thomson Financial) - Bear Stearns Cos. Chief Executive James Cayne is expected to step down, The Wall Street Journal reported on its Web site late Monday, citing sources.

Alan Schwartz, president, is expected to take over as CEO, the Journal reported.

Cayne is also expected to remain as chairman, according to the report.

Bear Stearns (nyse: BSC - news - people ) shares closed the regular session down $2.62, or about, 3.3%, at $76.25.

Brigid Gaffikin


Copyright Thomson Financial News Limited 2007. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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Bear Stearns CEO plans to step down

By Ben White and David Wighton in New York

Published: January 8 2008 00:46 | Last updated: January 8 2008 01:18

Jimmy Cayne has told the board of Bear Stearns that he plans to step down as chief executive of the Wall Street bank, which has suffered heavy losses in the credit market turmoil.

Mr Cayne, 73, hopes to remain as non-executive chairman and hand over the chief executive role to Alan Schwartz, Bear’s president. Bear Stearns directors are expected to meet soon to discuss the matter and an announcement could come as soon as Tuesday, people close to the matter said.

Mr Cayne is the latest casualty of the credit squeeze which has seen the exit of chief executives such as Peter Wuffli at UBS, Chuck Prince at Citigroup and Stan O’Neal at Merrill Lynch.

Bear Stearns has a large mortgage-related fixed income business and has been badly hit by the meltdown in the US subprime home loan market.

Last month, it unveiled fourth-quarter losses of $850m after a $1.9bn writedown of the value of mortgage-related assets.

Analysts predict it will face even further heavy losses. Bear’s share price, which has fallen 14 per cent in the past week, has halved over the past year. The bank is widely seen as a possible takeover candidate for a larger global bank.

People close to Mr Cayne, who has been considering retirement for some time, said he decided over the holidays that he wanted to step down from day-to-day responsibilities for the company he has run for 14 years. On Sunday he began informing board members of his decision, which was first reported by the Wall Street Journal.

In August, Mr Cayne ousted Warren Spector, who was co-president and head of its securities operations, after the collapse of two mortgage-related hedge funds the bank managed, an event that shook the credit markets and damaged the bank’s reputation as a savvy risk manager.

Mr Spector, long seen as Mr Cayne’s heir apparent, was criticised for “fundamentally mismanaging” the situation, people close to Mr Cayne said at the time.

Following Mr Spector’s departure, Mr Schwartz has been widely seen as Mr Cayne’s likely successor.

Mr Cayne, famous for his relatively short work days, came under heavy criticism for keeping up his golf and bridge games even as the credit squeeze hit Bear hard over the summer. The cigar-smoking Mr Cayne rejected that criticism, saying he remained in full control of the bank.

The elevation of Mr Schwartz, 57, a veteran investment banker best known as adviser on high-profile corporate deals, may increase speculation that the bank could seek to sell itself.

In October, Bear announced a ground-breaking joint venture deal with China’s Citic Securities, which involves the two companies investing $1bn in each other.

Under the deal, Citic will acquire securities that will convert into 6 per cent of Bear’s stock and has an option to raise its stake to 9.9 per cent.

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