DECEIT IS THE ESSENCE OF FRAUD.
At Bear Stearns, senior management spent years deceiving investors.
And boy was it ever worth it...
Former Bear Stearns CEO - consummate salesman and card-sharp Jimmy Cayne - led a campaign to brand Bear Stearns. Under Cayne, Management worked damn hard to convince investors, potential investors, customers, counter-parties and everyone else with an interest in Wall Street and business (you know who you are) that Bear Stearns was (among many other things):
(a) Wall Street's premier risk manager.
(b) A company focused on building shareholder value through long-term growth to such a degree that Bear Stearns passed up opportunities for big short-term profits from industry "fads" to stick to its "long-range vision."
-AND-
(c) A company positioned to succeed regardless of market conditions.
The Scam That Never Ended
As late as October 2007, Bear mortgage chief Tom Marano bragged at the firm's investor day that Bear had a "mortgage franchise for all seasons." (Remember that, mostly due to mortgages, Bear Stearns took a write-down of nearly $2 billion about a month later, and in December 2007, the company announced an $850 million loss for thquarter).
Bear Stearns repeatedly insisted that its "strong risk management culture" started at the top of the company and was deeply ingrained in all Bear Stearns employees.
Bear's leaders also insisted that their company avoided large "directional bets" on asset classes because Bear Stearns considered such gambling far too risky. To our knowledge, Bear Stearns did not any caveat about an exception by which the firm would lay immense, bet the ranch-style bets on housing, mortgages and mortgage related securities.
Under Jimmy Cayne, Bear Stearns constantly reinforced its commitment to excellence in risk management and taking the slow, steady road to shareholder growth.
These kinds of representations were lies; nothing less than a propaganda campaign designed to inspire confidence and win trust from clients, investors, the media and the financial services industry.
In other words, Bear Stearns sold a totally bogus image to the public. Cayne and his lieutenants deliberately created a "brand" for Bear Stearns, and the Bear Stearns brand had no basis in reality (at least not during this decade).
The true Bear Stearns, we now know, was a high-risk, reckless operation focused on short-term profits and little else.
Put simply, deliberate misrepresentations and omissions by Bear's senior officers induced shareholders to invest in a company that bore little resemblance to The Bear Stearns Companies Inc.
CONCLUSION
Securities fraud at Bear Stearns was so "textbook" that law schools should use the prosecution of Bear Stearns (and former members of senior management) to teach securities fraud. Oh, right. Our bad. There is no prosecution of Bear Stearns.
Makes you wonder if old Enron chief Jeff Skilling thinks he got screwed...
Seriously, the securities laws are meaningless if Bear's officers and directors are not held accountable for massive losses suffered by the former investment bank's many shareholders.
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