Judge dismisses JPMorgan-Bear Stearns merger lawsuit

JPMorgan

New York: A New York judge on Thursday dismissed a $2.5 billion lawsuit that challenged JPMorgan Chase & Co's purchase of Bear Stearns Cos, concluding that company officials acted appropriately in avoiding a "potentially cataclysmic" bankruptcy.

Justice Herman Cahn of New York State Supreme Court in Manhattan rejected claims by former Bear shareholders that the company's directors acted in bad faith in agreeing to a $10-per-share buyout, rather than holding out for a higher price.

The judge also found in the consolidated class-action case that the plaintiffs failed to show that JPMorgan conspired with Bear's board, or "dominated" Bear's daily operations to such a degree that the merger became a foregone conclusion.

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Bear's board tried "to preserve some shareholder value while averting the uncertainty of a bankruptcy -- an event with potentially cataclysmic consequences for the broader economy as well as for shareholders," Cahn wrote in a 44-page ruling.

The judge said the fallout from letting Bear fail, and perhaps liquidate, "justified the inclusion of various merger protection provisions intended to increase the certainty of the consummation of the transaction with JPMorgan."

Lawyers for the plaintiffs did not immediately return calls seeking comment. JPMorgan spokesman Brian Marchiony declined to comment.

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Bear was forced to sell itself in a buyout arranged by the US Federal Reserve after fleeing clients led to a liquidity crunch that drove the 85-year-old investment bank to the brink of failure.

JPMorgan originally agreed on March 16 to pay just $2 per share for Bear, but quintupled the price a week later after Bear shareholders objected. It was also allowed to take an immediate 39.5 per cent stake in Bear, making it virtually impossible for unhappy shareholders to mount opposition.

The roughly $1.5 billion buyout closed on May 30, and the Fed agreed to backstop $29 billion in potential losses on Bear's balance sheet.

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Cahn separately rejected the plaintiffs' claims that Jamie Dimon abused his dual role as JPMorgan's chief executive and as a director of the Federal Reserve Bank of New York in connection with the buyout talks.

"Dimon's alleged control (or even 'domination') of the negotiations is irrelevant to JPMorgan's aiding and abetting liability because the only pertinent inquiry is whether the independence of Bear Stearns' board was compromised," the judge wrote.

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