Bear Stearns Pays $27 Million to Settle Lawsuit
Bear Stearns, the former Wall Street brokerage giant, has paid $27 million to settle a lawsuit concerning a now-defunct Orlando company involved in one of the biggest insurance fraud cases in Florida history, lawyers said Wednesday.
Bear Stearns recently settled allegations that it gave deceptive and misleading investment advice to National Heritage Life Insurance Co., which went bankrupt nearly 15 years ago amid losses of $400 million, lawyers for the bankruptcy trustee said.
The longtime Wall Street pillar, now part of JPMorgan Chase, denied any wrongdoing. Lawyers said the firm was simply a broker -- not a financial adviser -- to National Heritage. They insisted all advice was accurate and full disclosures were made about the risks of the securities.
But lawyers for the bankruptcy trustee said Bear Stearns played a role in the downfall of National Heritage, which had thousands of life-insurance and annuity customers in Florida.
"Bear Stearns engaged in conduct that resulted in significant losses for National Heritage," said an Orlando lawyer for the trustee's legal team. "And that added to the downward spiral and eventual collapse of the company."
The settlement ends more than a decade of litigation by trustees who accused Bear Stearns of lying about the potential value of mortgage-backed securities -- long before problems with such investments became the focus of the nation's current financial crisis.
Using false projections of lucrative returns, Bear Stearns lured National Heritage to buy a huge stake in mortgage-related securities to boost its profits, according to the lawsuit. Instead, the securities generated big losses, the suit said.
National Heritage became insolvent in the mid-1990s, plagued by malfeasance by corporate officials who looted it for about $400 million. Many were convicted of charges ranging from fraud to money laundering.
Trustees eventually were able to restore the value of National Heritage's insurance policies and annuities for its 25,000 customers. They did it by negotiating deals with insurance guaranty associations in each state where the company did business, according to the trustee lawyer.
With the Bear Stearns settlement, the trustee has now recovered nearly $250 million, all of which goes to compensate the state guaranty organizations, he said.
Bear Stearns itself folded this year amid the subprime mortgage meltdown that has now morphed into a global economic crisis. The firm was acquired by JPMorgan Chase for $1.4 billion, or about $10 a share. It had traded as high as $171 a share in 2007.
Experts said Bear Stearns fell victim to its own aggressive investment sales culture and misguided bets on flawed securities tied to higher-interest mortgages.