Baffled Execs Say Rumor Killed Stearns

They claim hedge funds, Goldman Sachs invented bad news for profit
By Neal Colgrass,  Newser Staff
Posted Jul 5, 2008 12:06 PM CDT
Baffled Execs Say Rumor Killed Stearns
The headquarters for securities firm Bear Stearns is shown March 16, 2006 in a New York file photo.   (AP Photo/Mark Lennihan, File)

Bear Stearns' collapse and shotgun marriage to JP Morgan were sparked by little more than a rumor, Vanity Fair reports. True, the investment bank had stumbled—a $1.6 billion bailout of troubled funds hurt its image—but whispers of liquidity problems were false: Bear had $18 billion in cash reserves. Now former executives and the SEC want to know who killed the company.

Bear execs say that two hedge funds, and competitor Goldman Sachs, started the rumor to reap a profit—a claim the accused deny. But if Bear's demise was engineered, the details may never emerge. "Even with subpoena power, I'm not sure the SEC will get to the bottom of this, because the standard of proof is just too difficult," said one investment firm chairman. "But I hope they do." (Read more Bear Stearns stories.)

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