Securities Law Prof Blog

Hedge Fund Manager Criminally Charged with Market Manipulation

The SEC announced that the United States Attorney's Office for the Southern District of Florida unsealed an Indictment charging Michael Lauer and four other individuals with one count of conspiracy to commit mail, wire and securities fraud and six counts of wire fraud. If convicted, Lauer faces a maximum sentence of 20 years and a $250,000 fine for each count of wire fraud and five years and a $250,000 fine for the conspiracy count. The Indictment also seeks forfeiture of properties obtained, directly or indirectly as a result of the alleged criminal violations.  The Indictment alleges that from at least October 1999 through July 2003, Lauer, as founder and primary manager, formed and directed several hedge funds, collectively known as the Lancer Group hedge funds, to manipulate the month-end closing prices of shares of thinly-traded shell companies' securities, to falsely overstate the value of the Lancer Group's holdings. According to the Indictment, Lauer purchased large quantities of restricted stock at pennies per share in private transactions and then purchased small amounts of the same securities for the Lancer Group to drive up the price by the end of the trading day. Lauer then falsely valued the securities held by the Lancer Group, including the restricted shares, at the much higher closing price, to pump-up the performance fees paid to the management companies, attract new investors to buy into the hedge funds, and induce current investors in the hedge funds.

Cox Supports Basel Committee's Guidance on Liquidity Management

SEC Chair Christopher Cox sent a letter to the chairman of the Basel Committee on Banking Supervision expressing strong support for its planned updated guidance on liquidity management for banking organizations in light of the recent market turmoil.  Chairman Cox Letter to Basel Committee in Support of New Guidance on Liquidity Management

Levitt on Financial Reform

Arthur Levitt, former SEC Chair, calls for regulatory reforms in a Wall St. Journal op-ed piece, including:

Beyond these immediate fixes, what's needed to restore public confidence is a more wholesale reconsideration of how we can inject greater transparency into the markets and bring about a change in attitude on the part of business leaders and policy makers that puts the interests of investors first. This may require a more fundamental restructuring of how we regulate the markets -- for instance, merging the SEC and the Commodities Futures Trading Commission to create a single securities regulator -- and giving that regulator the resources and the authority to do its job, something the SEC currently lacks.

WSJ, Regulatory Underkill.

SEC Compensation Rules Result in Math But Not Comprehension

What has been the effect of the SEC's new rules on the disclosure of executive compensation in the 2008 proxy materials?  Complex mathematical formulas and not much comprehension of the numbers is what the Wall St. Journal found in a page one story.  It appears that some companies, frustrated with the SEC's demand for more disclosure, included math that even math wizards may not understand.  But working your way through the calculations may not be especially informative; key information, like performance goals for the CEO, are not disclosed for fear of tipping off competitors.  WSJ, New Math) x (SEC Rules) + Proxy=Confusion.

SWFs Adopt Investment Principles

Treasury Secretary Paulson announced that the Abu Dhabi and Singapore SWFs adopted investment principles committing them to avoid "geopolitical goals," promote disclosure of investment activity and adopt strong internal controls.  In addition, the IMF plans to develop "best practices" for SWFs.  NYTimes, Sovereign Funds Agree to Shun ‘Geopolitical’ Investing; WSJ, Code Is Set for State-Run Funds.

Frank Calls For Unified Financial Regulation

Will the cost to the financial industry of the Fed's bailout be more pervasive regulation over the entire industry?  Rep. Barney Frank calls for a single regulator with the power to regulate banks, securities firms, hedge funds and other financial players.  NYTimes, Lawmaker Urges New Financial Oversight.

FINRA Proposes Two Changes to Arbitration Codes

The SEC published for public comment two minor revisions to the FINRA Codes of Arbitration Procedure for Customer and Industry Disputes:  to Amend the Chairperson Eligibility Requirements  and to Permit Submissions to Arbitrators After a Case Has Closed Under Limited Circumstances.

Richards on SEC Exams of Investment Advisers

Speech by SEC Staff: Focus Areas in SEC Examinations of Investment Advisers: the Top 10, by Lori A. Richards, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission, at the IA Compliance Best Practices Summit 2008, IA Week and the Investment Adviser Association, Washington, D.C. March 20, 2008.

AB Volvo Settles FCPA charges

The SEC settled Foreign Corrupt Practices Act books and records and internal controls charges against AB Volvo in the U.S. District Court for the District of Columbia. AB Volvo is a Swedish company that provides commercial transport solutions, including trucks, buses and construction equipment.  (Volvo is not the company that currently makes the "Volvo" brand car.) The Commission's complaint alleges that from 1999 through 2003, two of AB Volvo's subsidiaries and their agents and distributors made approximately $6,206,331 in kickback payments, and authorized additional payments of $2,388,419 in connection with their sales of humanitarian goods to Iraq under the United Nations Oil for Food Program (the "Program"). The kickbacks were characterized as "after-sales service fees" ("ASSFs"), but no bona fide services were performed. One of Volvo's subsidiaries also made other types of illicit payments to Iraq. The SEC alleged that AB Volvo either knew or was reckless in not knowing that illicit payments were either offered or paid in connection with these transactions and failed to maintain an adequate system of internal controls to detect and prevent the payments, and its accounting for these transactions failed properly to record the nature of the payments. AB Volvo consented to the entry of a final judgment permanently enjoining it from future violations, ordering it to disgorge $7,299,208, in profits plus $1,303,441 in pre-judgment interest, and to pay a civil penalty of $4,000,000. AB Volvo will also pay a $7,000,000 penalty pursuant to a deferred prosecution agreement with the U.S. Department of Justice, Fraud Section.

Melvyn Weiss Pleads Guilty, Will Serve 18-33 months

Melvyn Weiss agreed to plead guilty to a federal racketeering charge and acknowledge that he and others concealed secret payment arrangements that Milberg Weiss had with named plaintiffs in class action lawsuits.  The plea agreement calls for a sentence of between 18 and 33 months.  Weiss also agrees to forfeit $9.75 million in ill-gotten gains and to pay a criminal fine of $250,000.  Previously, former Milberg Weiss partners William Lerach, David Bershad and Steven Schulman pleaded guilty to their involvement in the secret kickbacks scheme.  There are two remaining defendants in the case -- the law firm itself and Paul Selzer -- scheduled to go on trial in August.

Milberg Weiss issued a press release stating its deep disappointment that it learned that Weiss had engaged in misconduct and that it had previously believed former leaders' assurances of their innocence.

SEC Investigating Bear Stearns Put Trades

The Wall St. Journal reports that the SEC is investigating an unusual increase last week in trading in put options of Bear Stearns Stock.  Put options give the purchaser the right to sell the stock at a fixed price in the future; the buyer's profit is made if the price of the stock declines during the option period.  Heavy trading in puts began on March 7 and became more aggressive in later days.  WSJ, SEC's Bear Stearns Probe Zeroes In on 'Put' Trades.

Weiss Agrees to Plea Bargain

Melvyn Weiss agreed to plead guilty to kickbacks in securities class actions.  The terms of the deal were not announced.  WSJ, Weiss Makes Plea Deal In Kickback Case.

Bear Stearns Amends Indemnification Bylaw

Bear Stearns has posted at its website Shareholder FAQs about the Morgan-Bear merger.  One question, and answer:

How could this have happened to an 85 year old firm?
Extraordinary conditions have existed in the credit markets for at least nine months,
generally restricting the credit available to financial institutions, including Bear Stearns.
During the last week, rumors about our liquidity caused customers to withdraw funds and
terminate positions, further straining our liquidity position. Even with the Fed’s
intervention on Friday, the Bear Stearns Board of Directors agreed to an acquisition by
JPMorgan Chase based on its judgment that the transaction is in the best interest of our
stakeholders, the best strategic alternative for the Firm, and allows us to continue
business operations. We believe that the acquisition represents the best outcome for all
of our constituencies based upon the current circumstances.

Bear Stearns also disclosed, in an 8-K filing, that on March 16, 2008, the Board approved an amendment to the By-laws adding a new Article 14, effective immediately (the "Amendment"). The purpose of the Amendment is to provide that in connection with any indemnification as set forth in Article VIII of the Company's Certification of Incorporation, expenses, including attorneys' fees, incurred by the person entitled to indemnification in defending any such action, suit or proceeding shall be paid or reimbursed by the Company promptly upon demand by such person.

SEC Issues No-Action Letter re. Form BD Amendments in Morgan-Bear Merger

The SEC Division of Trading and Markets issued a no-action letter to J.P. Morgan Chase, stating that

In view of the circumstances of the purchase of Bear Stearns by JP Morgan Chase,
the Division of Trading and Markets will not recommend enforcement action if JP
Morgan Chase files, within a reasonable period from after the close of the
purchase of Bear Stearns by JP Morgan Chase, the Form BD amendments required as
a result of the change of control contemplated under the purchase agreement and
related agreements.

SEC Shuts Down Ponzi Scheme

The SEC announced the filing of a settled civil injunctive action in the United States District Court for the Eastern District of Virginia against Ralph Gregory Gibbs, who operated an offering fraud and "Ponzi" scheme. The Complaint alleges that since at least April 2005 through February 2007, Gibbs, doing business as Golden Summit Group, raised approximately $21 million from at least 150 investors in at least 25 states, many of whom were elderly, retired or otherwise living on limited incomes, through the offer and sale of securities. The Commission's Complaint further alleges that in exchange for their investments in Golden Summit Group, Gibbs promised to pay investors interest of 3-5% monthly (up to 60% annually) and guaranteed that investors would not lose their principal.

Abu Dhabi's SWF Speaks on its Plans

Yousef Al Otaiba, the Director of International Affairs for the Government of Abu Dhabi, has an opinion piece in today's Wall St. Journal on Our Sovereign Wealth Plans, in which he states:

Abu Dhabi's investment organizations also meticulously follow all of the laws, regulations and rules of the countries and exchanges where they make investments, and meet all disclosure requirements of relevant government and regulatory bodies. There is acceptance of the need for increased scrutiny from governments of in-bound investments that have potential national security implications, so long as the process is clear, fair and timely. For example, Abu Dhabi's investment organizations to date have been comfortable with the new review process in the United States, and remain committed to abiding by both the letter and the spirit of the new law.

It is important to be absolutely clear that the Abu Dhabi government has never and will never use its investment organizations or individual investments as a foreign-policy tool.

Visa Goes Public

Visa went public yesterday in the largest U.S. IPO ever -- $18 billion.  The shares were priced at $44, above the expected range of $37-$42.  About 77% of the IPOs in the pipeline have been withdrawn or postponed.  WSJ, Visa's IPO Price: $44 a Share; NYTimes, Big Payday for Wall St. in Visa’s Public Offering.

Will Bear Shareholders Kill the Deal?

Trading in Bear Stearns stock was heavy yesterday, and the stock closed at $5.91 per share, almost three times the price offered by JP Morgan Chase in the merger.  Both bondholders, who want the deal to go through, and stockholders, who hope a better deal is out there, were buying the shares.  Shareholders, many of whom are Bear Stearns employees (an estimated 30% of the shares are owned by employees), threaten to vote down the merger, but it appears unlikely that another bidder would risk the Fed's wrath and offer competition to the merger it brokered.  JP Morgan Chase has two valuable lock-up options, an option to buy the Bear Manhattan headquarters and an option to buy 19.9% of Bear stock at $2.  If the shareholders vote down the merger (the vote is expected by the end of May), Morgan could purchase the shares and may have enough stock to prevail at a second shareholders vote (which the merger agreement provides for).  NYTimes, It’s Bondholders vs. Shareholders in a Race to Buy Bear Stearns Stock; WSJ, Bear's Run-Up Sets the Stage
For Epic Clash.

Unregistered Day-Trading Firm Enjoined

On March 17, 2008, a federal court permanently enjoined Tuco Trading, LLC, an unregistered securities day-trading firm in La Jolla, California, and its principal, Douglas G. Frederick, from future violations of the broker-dealer registration and antifraud provisions of the federal securities laws. Tuco and Frederick consented to the entry of the permanent injunctions without admitting or denying the allegations of the SEC's complaint, which alleged that the defendants provided securities day-trading capability to Tuco's over 250 traders who had approximately $10.2 million in reported equity balances at Tuco. The complaint alleged that Tuco provided traders with services not permitted at a registered broker-dealer. As alleged in the complaint, the defendants allowed traders to day-trade without meeting the $25,000 minimum equity requirement under NASD regulations for such trading. The complaint also alleges that for each $1 in the trader's sub-account, Tuco and Frederick allowed the traders at Tuco to use up to $20 of Tuco's equity, which had been invested by other traders, to purchase securities (20:1 buying power). NASD and NYSE regulations, however, only allow a day-trader to have 4:1 buying power

W>P. Carey Settles Charges of Undisclosed Brokers' Payments

The SEC filed settled securities fraud charges against W.P. Carey & Co., a manager of real estate investment trusts (REITs), and two of W.P. Carey's senior executives for paying undisclosed compensation to a brokerage firm that sold the REITs to investors. W.P. Carey did not disclose the payments to the broker-dealer, as it was required to do in the REITs' offering documents, and misrepresented the payments in the REITs' periodic filings.  The SEC complaint names as defendants W.P. Carey & Co.; John J. Park, formerly the chief financial officer of W.P. Carey, until yesterday a managing director of strategic planning at W.P. Carey and currently an employee in charge of strategic planning; Claude Fernandez, formerly the chief accounting officer and currently a managing director of W.P. Carey; and Carey Financial, LLC, a broker-dealer subsidiary of W.P. Carey.

To settle the SEC's charges, W.P. Carey agreed to pay approximately $30 million — approximately $20 million in disgorgement and interest and $10 million in penalties. Park's settlement includes a five-year bar from serving as an officer or director of a public company, and a $240,000 penalty. Fernandez's settlement includes a two-year suspension from appearing before the Commission as an accountant and a $75,000 penalty.

SEC Staff on Bear Stearns Situation

The SEC website has posted Answers to Frequently Asked Investor Questions Regarding The Bear Stearns Companies, Inc.  As part of a response to a question about SEC involvement in the JPMorgan Chase/Bear Stearns merger, the SEC stated:

The Division of Enforcement wrote a letter concerning investigations and potential future inquiries into conduct and statements by Bear Stearns before the public announcement of the transaction with JPMorgan. The staff declined to provide assurances about possible future enforcement actions. The letter states that reaching conclusions about those inquiries would be premature. In the letter, the Division confirmed that, consistent with prior statements and guidance by the SEC, the staff would favorably take into account the circumstances of the JPMorgan acquisition of Bear Stearns when considering whether to recommend enforcement action against JPMorgan arising out of statements made by Bear Stearns in the 60 days before the public announcement of the merger

Yahoo Releases Three-Year Financial Plan

Yahoo! today filed an investor presentation that details the Company's three-year financial plan and strategic initiatives which hopes to roughly double operating cash flow over the next three years from $1.9 billion to $3.7 billion and generate $8.8 billion in revenue excluding traffic acquisition costs (revenue ex-TAC) in 2010.  The plan represents the company's justification for refusing to negotiate with Microsoft, and management is expected to make the presentation to major shareholders.  According to the company's press release,

The presentation supports the unanimous determination by the Company's board of directors that Microsoft's January 31, 2008 unsolicited acquisition proposal substantially undervalues Yahoo!. The board cited Yahoo!'s global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as its substantial unconsolidated investments, as factors in its decision. Yahoo!'s board of directors is continuing to evaluate all of its strategic alternatives to maximize value for Yahoo! stockholders.

Abu Dhabi Issues Nine Principles on Investments

Abu Dhabi, in response to concerns about the growing power of its investment fund, said that it would not use its SWF for political purposes.  A letter sent to Treasury Secretary Paulson and other Western officials set forth nine general principles that guide Abu Dhabi's investments, but does not provide specific commitments to limit the power of its purse.  WSJ, Abu Dhabi Sets Investment Code.

Is it Time to Reform the System?

The SEC has been on the sidelines after its Friday announcement that it was keeping a close watch on Bear Stearn's financial condition, as the Fed stepped in to engineer a bailout and attempt to restore confidence in the markets.  This makes sense as only the Fed has the money to supply in a liquidity crisis.  But with the finger-pointing over who should have done what sooner may well come calls for a unified system of financial-services regulation.  WSJ, Crisis Highlights SEC's Limits.

Bear Stearns-JP Morgan Deal Coverage

All the news is about JP Morgan Chase's steal of a deal for Bear Stearns, so just peruse your favorite news source.  Both the NY Times and the Wall St. Journal give riveting accounts of how the deal came together over the weekend.  Some interesting facts about the deal:  Morgan originally offered a price in the low double digits, but the price dropped as Morgan looked at Bear's books and it became clear that the Fed wanted this deal.  If the deal does not go through, Morgan has an option to buy Bear Stearns headquarters in Manhattan and an option to buy nearly 20% of Bear Stearns stock at $2.  It is not clear what would happen to Morgan's managerial oversight and the Fed guarantees if the Bear shareholders vote down the deal.  The Morgan CEO James Dimon emerges as the big winner, and no one is saying what happens to Bear CEO Alan Schwartz.  Bear employees emerge as the big losers, as Bear encouraged all its employees to invest in its stock; one-third of it is owned by employees.

Conspiracy theorists wonder about the role of short sellers in bringing about the demise of Bear Stearns.  More generally, there is criticism about why the government is rushing to bail out Wall St. and not helping homeowners who lose their homes to foreclosure.  And finally, everyone is wondering whether Lehman is next.  That firm has gone on an offensive to assure the market that its financial health is just fine.

For some of the coverage, see NYTimes, Aftershocks of a Collapse, With a Bank at the Epicenter and At Lehman, Allaying Fears About Being the Next to Fall; WSJ, The Week That Shook Wall Street:
Inside the Demise of Bear Stearns and Lehman Finds Itself In Center of a Storm.      

Court Enters Judgment against Former Connecticut Majority Senate Leader

On March 13, 2008, the federal district court for the District of Connecticut entered a judgment imposing sanctions against William A. DiBella, the former Majority Leader of the Connecticut State Senate, and his consulting firm, North Cove Ventures, L.L.C. for their roles in aiding and abetting then Treasurer of the State of Connecticut, Paul J. Silvester in a fraudulent investment scheme. Pursuant to the scheme, Silvester had invested $75 million in state pension funds with Thayer Capital Partners, a Washington, DC-based private equity firm, and arranged for Thayer to pay DiBella a percentage of the investment, though he did not do work to justify the payment.  The court ordered DiBella to disgorge $374,500 (the amount of his ill-gotten gains from the scheme) and to pay $307,127.45 in prejudgment interest. In addition, the Court imposed a penalty of $110,000. The Court declined to enter a permanent injunction or an officer-and-director bar against DiBella.

Previously, the Commission brought and settled charges against Silvester, Thayer, Malek, and two Thayer affiliates

SEC Publishes Text of Naked Short Sales Antifraud Rule

The SEC released for public comment the text of its proposed antifraud rule to address fails to deliver securities that have been associated with “naked” short selling. The proposed rule is intended to highlight the liability of persons that deceive specified persons about their intention or ability to deliver securities in time for settlement, including persons that deceive their broker-dealer about their locate source or ownership of shares and that fail to deliver securities by settlement date.

FINRA Proposes Amendment to Motion to Dismiss Procedures

FINRA Dispute Resolution is proposing to amend NASD Rules 12206 and 12504 of the Code of Arbitration Procedure for Customer Disputes (“Customer Code”) and NASD Rules 13206 and 13504 of the Code of Arbitration Procedure for Industry Disputes (“Industry Code”) by providing specific procedures that will govern motions to dismiss, and amending the provision of the eligibility rule related to dismissals. Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Relating to Amendments to the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes to Address Motions to Dismiss and to Amend the Eligibility Rule Related to Dismissals.

SEC Approves FINRA Rule Amending Definition of Public Arbitrator

The SEC approved a FINRA proposal to amend the definition of public arbitrator in Rule 12100(u) of the Customer Code and Rule 13100(u) of the Industry Code to add a provision that would prevent an attorney, accountant, or other professional from being classified as a public arbitrator, if the person’s firm derived $50,000 or more in annual revenue in the past two years from professional services rendered to any persons or entities listed in Rule 12100(p)(1) of the Customer Code or Rule 13100(p)(1) of the Industry Code relating to any customer disputes concerning an investment account or transaction, including but not limited to, law firm fees, accounting firm fees, and consulting fees.FINRA stated that the proposed amendment, in conjunction with the existing 10 percent revenue limitation, would further improve its public arbitrator roster by ensuring that arbitrators whose firms receive a significant amount of compensation from any persons or entities associated with or engaged in the securities, commodities, or futures business are removed from the public roster.  National Association of Securities Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); Order Approving Proposed Rule Change to Amend the Definition of Public Arbitrator.

SEC Publishes NYSE Proposal on Listing Standards for SPACs

The SEC published the NYSE proposal to amend the Exchange’s Listed Company Manual (the “Manual”) to adopt listing standards for special purpose companies formed for the purpose of raising capital in an initial public offering and entering into an undetermined business combination. The filing also proposes the adoption of requirements that (i) any equity security listing on the Exchange must have a closing price or, if listing in connection with an initial public offering (“IPO”), an IPO price per share of at least $4 at the time of initial listing and (ii) convertible debt issuances listed on the Exchange must have an aggregate market value or principal amount of no less than $10,000,000.  New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change to Adopt New Initial and Continued Listing Standards to List Special Purpose Acquisition Companies.

SEC Files Complaint in Alleged Stock Touting Scheme

The SEC filed a civil injunctive action in the United States District Court for the Middle District of Florida against two penny stock promoters, Robert M. Esposito and Gregory A. King; Anscott Industries, Inc., a microcap company headquartered in Wayne, New Jersey; and Jack R. Belluscio, Anscott's chairman and chief executive officer. The Commission charges that Esposito, King, Belluscio and Anscott participated in a fraudulent touting scheme of Anscott stock.  The complaint alleges that in April 2003, Esposito orchestrated a reverse merger between Anscott (then a private company) and Liquidix, Inc., a public shell company which, after the merger, changed its name to Anscott. According to the complaint, Belluscio, on behalf of Anscott, issued 4 million shares of Anscott stock to Esposito as compensation for arranging the reverse merger and for future stock promotion work. The complaint further alleges that Belluscio, on behalf of Anscott, filed a fraudulent Form S-8 registration statement with the Commission for the 4 million shares of Anscott issued to Esposito, which improperly enabled Esposito to sell these shares to the public during the fraudulent touting scheme.

As alleged in the complaint, after the reverse merger and the issuance of shares to Esposito, Esposito paid King, another penny stock promoter with whom Esposito had worked previously, to prepare and disseminate materially false and misleading tout sheets promoting Anscott stock. The Commission alleges that these tout sheets — crafted to appear like independent investment newsletters and entitled the Wall Street Bulletin — recommended Anscott as a "strong buy," and were disseminated to the public through fax spamming from late May 2003 through July 2003.

CME and Nymex Sign Deal

The Chicago Mercantile Exchange operator CME Group signed an agreement to acquire Nymex Holding, a $9.3 billion deal that will expand the CME into energy trading.  WSJ, CME Signs Deal for Nymex.

Nacchio Conviction Reversed, Remanded for New Trial

The 10th Circuit Court of Appeals reversed the conviction of Joseph Nacchio, former CEO of Qwest Communications, for insider trading.  Nacchio was convicted last April on 19 counts of insider trading and sentenced to six years in prison.  The Court (2-1)held the district court committed error when it excluded expert testimony from Northwestern law professor and private consultant Daniel Fischel.  He was expected to testify that the economic evidence was inconsistent with the government's allegation that his stock sales were made on the basis of material inside information.  The Court remanded the case for a new trial before a different trial judge.  The Denver Post has full coverage of this case, including a summary of Professor Fischel's proferred testimony.

Federal Reserve Will Lend Money to Securities Dealers

For the first time, the Federal Reserve will lend money to securities dealers, effective immediately and extending for at least six months.  The move is intended to provide financial institutions with greater assurance of access to funds.   WSJ, Central Bank Offers Loans To Brokers, Cuts Key Rate Historic Steps; NYTimes, Fed Acts to Rescue Financial Markets.

JP Morgan Chase Will Acquire Bear Stearns and Immediately Guarantee Trading Obligations

Bear Stearns agreed to be acquired by JP Morgan Chase in a stock for stock exchange that values Bear Stearns stock at about $2 per share, or $236 million.  As recently as Friday, Bear Stearns had a market capitalization of about $3.5 billion.  The Federal Reserve Bank will provide as much as $30 billion in financing for Bear Stearns' less liquid assets.  Effective immediately JP Morgan will guarantee Bear Stearns' trading obligations and provide management oversight of its operations.  As the press has frequently noted in the past few days, Bear Stearns refused to participate in the 1998 bailout of Long-Term Capital Management that the Federal Reserve Bank of New York brokered with Wall St. firms.

The deal is subject to shareholder approval, and in a conference call last night, one Bear Stearns shareholder asked why this deal was better than Chapter 11.  About one-third of Bear Stearns shares are held by employees.  JPMorgan Chase Press Release; WSJ, J.P. Morgan Buys Bear in Fire Sale, As Fed Widens Credit to Avert Crisis; NYTimes, JP Morgan Pays $2 a Share for Bear Stearns.