Bear litigation could hit Bienen

Christina Salter

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As the shareholders of the failed investment bank Bear Stearns begin to file suit, litigation might target the company’s board of directors.

One former director is University President Henry Bienen.

Bienen had told a Dow Jones Newswires reporter through a spokesman in March that he would not run for re-election to the board five days before the company announced an emergency merger to save itself.

New York-based lawyer Jacob Zamansky recently filed the first shareholder lawsuit against Bear Stearns. Although Zamansky’s lawsuit concerns hedge fund managers, future litigation might target members of the board, including Bienen, the attorney said.

“It’s certainly possible,” said Nancy Rapoport, a University of Nevada, Las Vegas law professor and corporate governance expert. “But there has to be a lot more investigation before anything firm could be established.”

In an e-mail, Bienen wrote, “I have not heard of any (litigation).”

“Northwestern would not be affected,” he added.

No matter what action is taken, it would not impact the university, said NU vice president and general counsel Thomas Cline in an e-mail.

“President Bienen served on the Bear Stearns board in his individual capacity, not as a representative of Northwestern,” Cline said. “I therefore don’t wish to speculate on ‘hypothetical implications’ for the University because the University has no involvement with what happened at Bear Stearns.”

The failure of Bear Stearns in March is considered a prelude to the current economic crisis. After an emergency federal government loan failed to prop up the declining bank, JP Morgan bought Bear Stearns for $2 a share, for a total of $236 million. Even when the sale price was increased to $10 a share a week later, the sale was still considered a bargain.

In any lawsuit of this nature, litigants must prove that a breach of duty has occurred, Rapoport said.

If shareholders believed that executives didn’t pay enough attention to the financial situation or took opportunities for themselves, this could be grounds for a suit, Rapoport said.

In Zamansky’s case against Bear Stearns, hedge-fund managers have been charged with allegedly misleading investors, according to the Chronicle of Higher Education. Although Zamansky sees no cause to include members of the board of directors in his case, other lawyers will likely include them in future cases, he said.

According to Zamansky, the board of directors of WorldCom was named and forced to settle in the 2005 lawsuit. The case held the board partially responsible for accounting fraud and forced them to pay part of the $54 million settlement, according to CBS News.

Bienen earned $59,500 in cash fees, $103,510 in stock awards and $62,808 in stock options from Bear Stearns, according to the Chronicle of Higher Education.

Even if a lawsuit is filed, it may still be dismissed, Rapoport said.

However, this issue raises the larger question of whether university presidents should serve on boards, she said.

“It’s a huge time commitment and there are risks of liability, so it’s something that everyone has to weigh,” she said.