Bear Stearns continues to make headlines. Remember the two hedge fund managers who were indicted, tried and acquitted on charges of fraud. The hedge fund managers were accused of lying about the health of the hedge funds, which had invested in bonds backed by subprime mortgages.
Now one would think that an acquittal in the criminal case would mean trouble for the investors who are seeking civil damages arising out of the same conduct. However, a FINRA panel recently awarded $3.4 million to just such an investor. This investor, Racetrac Petroleum, lost its entire $5 million investment in the hedge fund and brought a claim that was heard by a FINRA arbitration panel. The panel, after 32 hearings, found that Bear Stearns misled Racetrac and awarded the damages. Bear Stearns was purchased by JP Morgan. JP Morgan is now responsible for the loss.Lesson: Don’t eat a rotten Bear.