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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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AMENDMENT NO. 1
[x] AMENDMENT TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended June 30,
1997
or
[_] AMENDMENT TO TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. For the transition period from
___________ to ___________
Commission file number: 1-8989
THE BEAR STEARNS COMPANIES INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3286161
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
245 PARK AVENUE, NEW YORK, NEW YORK 10167
(212) 272-2000
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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COMMON STOCK, PAR VALUE $1.00 PER NEW YORK STOCK EXCHANGE
SHARE
ADJUSTABLE RATE CUMULATIVE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, SERIES A
DEPOSITARY SHARES, EACH REPRESENTING A NEW YORK STOCK EXCHANGE
ONE-EIGHTH INTEREST IN A SHARE OF
7.88% CUMULATIVE PREFERRED STOCK,
SERIES B
DEPOSITARY SHARES, EACH REPRESENTING A NEW YORK STOCK EXCHANGE
ONE-EIGHTH INTEREST IN A SHARE OF
7.60% CUMULATIVE PREFERRED STOCK,
SERIES C
DEPOSITARY SHARES, EACH REPRESENTING NEW YORK STOCK EXCHANGE
A ONE-EIGHTH INTEREST IN A SHARE OF
8% CUMULATIVE PREFERRED STOCK,
SERIES D (NOT PRESENTLY OUTSTANDING)
9-1/8% SENIOR NOTES DUE 1998 NEW YORK STOCK EXCHANGE
9-3/8% SENIOR NOTES DUE 2001 NEW YORK STOCK EXCHANGE
CUSTOMIZED UPSIDE BASKET SECURITIES AMERICAN STOCK EXCHANGE
DUE 1998
S&P 500 LINKED NOTES DUE 2003 CHICAGO BOARD OPTIONS EXCHANGE, INC.
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
At September 2, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $4,450,610,484. For purposes
of this information, the outstanding shares of Common Stock owned by directors
and executive officers of the registrant were deemed to be shares of Common
Stock held by affiliates.
On September 2, 1997, the registrant had outstanding 117,703,804 shares of
Common Stock, par value $1.00 per share, which is the registrant's only class of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
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EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K of
The Bear Stearns Companies Inc. (the "Company") for the fiscal year ended
June 30, 1997 amends and restates in its entirety Item 3 of Part I.
PART I
ITEM 3. LEGAL PROCEEDINGS.
The Company and Bear Stearns are parties to the legal proceedings
discussed below, which have arisen in the normal course of business. In view of
the inherent difficulty of predicting the outcome of litigation and other legal
proceedings, the Company cannot state what the eventual outcome of these pending
proceedings will be. It is the opinion of management, after consultation with
independent counsel, that the legal proceedings referred to below will not,
individually or in the aggregate, have a material adverse effect on the
Company's financial position.
A.I.A. Holding, S.A., et al. v. Lehman Brothers, Inc., et al. On
July 8, 1997, 277 alleged customers of Ahmad Ihsan El-Daouk commenced an action
in the United States District Court for the Southern District of New York
against Lehman Brothers, Inc. and Bear Stearns. Plaintiffs allege that Daouk,
acting through corporations he controlled, entered into introducing broker
agreements with Lehman and then Bear Stearns, and that he arranged for each of
the plaintiffs to invest funds with Lehman and/or Bear Stearns. Lehman exited
the business during the summer of 1992. Certain accounts opened at Lehman were
transferred to Bear Stearns sometime in 1992, and certain accounts were opened
at Bear Stearns beginning sometime in 1992.
The Complaint alleges, among other things, that for more than
seven years Daouk defrauded plaintiffs by misleading plaintiffs into believing
that the accounts Daouk managed on their behalf were earning substantial
profits, when in fact he was churning the accounts, incurring trading losses and
otherwise dissipating, stealing or converting their funds. This allegedly was
accomplished, in part, by Daouk intercepting account statements and other
information sent by Lehman and Bear Stearns to Daouk's customers and
substituting forged statements created by Daouk.
Bear Stearns is alleged to be liable to Daouk's customers on
numerous grounds, including claims that the Bear Stearns broker responsible for
the Daouk accounts allegedly was aware of the scheme, substantially assisted
Daouk in the commission of the fraud and received illegal payments for having
done so, Daouk held himself out to be a Bear Stearns agent with Bear Stearns'
knowledge and acquiescence, and Bear Stearns failed to perform properly its role
as Daouk's clearing broker by, among other things, failing to properly supervise
Daouk, failing to detect Daouk's fraud, permitting Daouk to commingle accounts
and allowing him to churn accounts.
The Complaint asserts 12 causes of action against Lehman and 12
causes of action against Bear Stearns, including, among other things, claims
alleging breach of fiduciary duty, negligence, negligent misrepresentation,
fraud, constructive fraud, breach of contract, negligent hiring, retention and
supervision, aiding and abetting fraud and aiding and abetting breach of
fiduciary duty. Plaintiffs allege that "the plaintiffs' losses appear to have
exceeded $100 million." Plaintiffs seek compensatory damages in unspecified
amounts, imposition of constructive trusts with respect to any property that
"belongs, or may belong," to plaintiffs in Lehman's or Bear Stearns' possession,
interest, attorneys' fees and costs.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
Alpha Group Consultants, et al. v. Weintraub, et al./In re
Weintraub Entertainment Group Litigation. On January 31, 1991, Alpha Group
Consultants Ltd. and the Allan D. Simon & Stefani R. Simon Living Trust
commenced an action in the United States District Court for the Southern
District of California involving a private placement by Weintraub Entertainment
Group ("WEG") of $81 million debentures and
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warrants in 1987. On April 2, 1992 and February 4, 1993 the court allowed
additional plaintiffs to intervene. The original defendants in the case were WEG
(a debtor in bankruptcy, named as a defendant only to the extent permitted by
federal bankruptcy law), certain directors and officers of WEG and Bear Stearns,
which acted as the placement agent in WEG's private placement.
Plaintiffs' current pleading alleges, among other things, that at
the time of the offering and after the offering, the defendants made false and
misleading statements concerning WEG's financial condition, the experience of
certain WEG officers, the intended use of proceeds from the sale of the WEG
securities, the prospects for a public market for WEG securities, WEG's business
plans, and certain terms of WEG's contracts with distributors. Plaintiffs allege
violations of Sections 12(2) and 15 of the Securities Act of 1933, Sections
10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, the Racketeer Influenced and Corrupt Organizations Act ("RICO"),
California state statutes, and common law duties allegedly owed by the
defendants to the plaintiffs. Plaintiffs purport to represent a class consisting
of purchasers of WEG debentures and warrants during the period January 23, 1987
through October 1, 1990. Plaintiffs seek unspecified compensatory and punitive
damages, treble damages under RICO, attorneys' fees and expenses.
On May 12, 1993, Bear Stearns filed an answer denying liability
and asserting affirmative defenses.
On May 10, 1993, the court entered a final judgment and order
(the "Settlement Order") approving a settlement among plaintiffs and the WEG
director and officer defendants and barring Bear Stearns from seeking
contribution, indemnity, or reimbursement from the WEG director and officer
defendants. The Settlement Order also provided that Bear Stearns' liability, if
plaintiffs succeed in establishing liability on the part of Bear Stearns, would
be limited to Bear Stearns' proportional share of the total damages awarded. On
September 15, 1993, the court entered an order granting class certification.
On April 22, 1994, the court granted summary judgment in favor of
Bear Stearns on all claims.
On July 15, 1997, the United States Court of Appeals for the
Ninth Circuit reversed the district court's grant of summary judgment in
connection with a statement in the offering materials provided to investors
concerning the timing of the payment of guaranteed advances by certain motion
picture distributors to WEG. The Ninth Circuit affirmed the district court's
dismissal of all other claims in the litigation.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
Amalgamated Insurance Fund-Insurance Fund, et al. v. Bear Stearns
& Co., Inc., et al./Alico Services Corp., Alico Resources Corp. and Pension Plan
for Employees of Amalgamated Life Insurance Company v. Bear Stearns & Co., Inc.,
et al. On January 9, 1997, five former Bear Stearns brokerage customers who are
employee welfare benefit plans or employee pension benefit plans under the
Employee Retirement Income Security Act ("ERISA") commenced a National
Association of Securities Dealers ("NASD") arbitration proceeding against Bear
Stearns, a former Bear Stearns account executive and two current Bear Stearns
employees (the "Amalgamated proceeding").
The claimants allege, among other things, unauthorized and
unsuitable trading and churning in their accounts involving derivative
securities. The claimants assert claims based upon breach of fiduciary duty,
breach of fiduciary duty under ERISA, participation in breach of fiduciary duty,
breach of contract, common law fraud, securities fraud, negligent
misrepresentation, negligence, investing in unsuitable securities, failure to
supervise and churning, unjust enrichment, and Sherman Antitrust Act and the
Donnelly Act. Claimants seek, among other relief, compensatory damages in an
unspecified amount, but in a range of $30 to $40 million or
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more. Claimants also seek punitive damages in an unspecified amount and trebled
damages under the Sherman Antitrust Act and New York's Donnelly Act.
On May 14, 1997, Bear Stearns filed an answer denying liability,
asserting affirmative defenses, counterclaims and third party claims that allege
that certain trustees of the plans and registered investment advisors hired by
the plans are solely responsible for any losses suffered by the funds, and
seeking, among other things, indemnification and contribution.
On May 2, 1997, three additional former Bear Stearns brokerage
customers commenced an NASD arbitration case against the same Respondents,
including Bear Stearns, alleging essentially the same claims, based upon
essentially the same facts and circumstances and, once again, seeking damages
including unspecified compensatory, punitive and treble damages (the "Alico
proceeding"). One of the three Claimants in this second arbitration purports to
assert claims as assignee of claims purportedly assigned to it by 17 other
pension and benefits funds that formerly were brokerage customers of Bear
Stearns.
Bear Stearns denies all allegations of wrongdoing asserted
against it in the Amalgamated and Alico arbitration proceedings, intends to
defend these claims vigorously and believes that it has substantial defenses to
these claims.
A.R. Baron & Company, Inc. The following matters arise out of
Bear Stearns' role as clearing broker for A.R. Baron & Company, Inc. ("Baron")
from July 20, 1995 through June 28, 1996.
(i) John Berwecky, et al. v. Bear Stearns & Co. Inc., et al./Jack
Perry v. Bear Stearns & Co., Inc., et al. On July 21 and August 22, 1997,
shareholders of companies whose securities were underwritten by, or that
otherwise had some relationship with Baron (these securities are referred to
below as "Baron securities") commenced two actions in the United States District
Court for the Southern District of New York against Bear Stearns, Bear Stearns
Securities Corp. and a managing director of Bear Stearns (collectively "Bear
Stearns").
The complaints allege, among other things, that Bear Stearns and
Baron engaged in a scheme to manipulate the market for and to inflate the prices
of the Baron securities. Plaintiffs allege violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. Plaintiffs purport to represent a class of all persons who acquired
Baron securities from July 20, 1995 through June 28, 1996. Plaintiffs seek
unspecified damages, attorneys fees and costs.
Bear Stearns denies all allegations of wrongdoing asserted
against it in these litigations, intends to defend against these claims
vigorously, and believes that it has substantial defenses to these claims.
(ii) Richard Schwarz v. Bear Stearns & Co. Inc., et al. On July
22, 1997, a customer of Baron commenced an action in the Supreme Court of the
State of New York, New York County, against Bear, Stearns & Co. Inc. and Bear
Stearns Securities Corp. (collectively "Bear Stearns").
The complaint alleges, among other things, that Baron engaged in
a scheme to manipulate the market for and to inflate the prices of Baron
securities, and that Bear Stearns, as clearing broker, wrongfully permitted
Baron to continue in business. Plaintiff alleges violations of the New York
Consumer Protection Act, common law negligence and negligent misrepresentation.
Plaintiff purports to represent a class of all persons who were customers of
Baron from July 20, 1995 through July 3, 1996. Plaintiff seeks unspecified
damages, attorneys fees and costs.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend against these claims
vigorously, and believes that it has substantial defenses to these claims.
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(iii) In connection with investigations concerning the A.R. Baron
brokerage firm and other correspondent firms, Bear Stearns and Bear Stearns
Securities Corp. have received formal and informal inquiries from various
regulatory and governmental agencies.
In re Blech Securities Litigation. On October 24, 1994, a
shareholder of certain biotechnology companies whose securities were
underwritten by, or that otherwise had some relationship with, D. Blech & Co.
("Blech Securities"), commenced an action in the United States District Court
for the Southern District of New York against D. Blech & Co., David Blech,
certain money managers and investment advisors, and Bear Stearns, which had been
a clearing broker for D. Blech & Co. from September 1993 through September 1994.
On December 14, 1994, the action was consolidated with three related actions. On
March 27, 1995, an Amended Consolidated Class Action Complaint was filed. On
June 6, 1996, the court granted Bear Stearns' motion to dismiss all allegations
in the First Amended Complaint asserted against Bear Stearns, and granted
plaintiffs leave to replead. On July 26, 1996, a Second Amended Consolidated
Class Action Complaint was filed.
Plaintiffs' current pleading alleges, among other things, a
scheme to manipulate the market for and to inflate the prices of Blech
Securities, and alleges that Bear Stearns violated Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and
committed common law fraud. Previously asserted and dismissed claims under the
Racketeer Influenced and Corrupt Organizations Act ("RICO") are not re-asserted
in plaintiffs' current pleading. On April 2, 1997, the court dismissed
plaintiff's Section 20(a) allegations. Plaintiffs purport to represent a class
consisting of persons who purchased Blech Securities from July 1, 1991 through
September 21, 1994, in a public offering or in the public market.
Plaintiffs seek unspecified damages.
On May 16, 1997, Bear Stearns filed an answer denying liability
and asserting affirmative defenses.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend against these claims
vigorously, and believes that it has substantial defenses to these claims.
Spencer C. Busby, et al. v. Donna Karan International, Inc., et
al./Salvatore Portannese, et al. v. Donna Karan International, Inc., et al.
Beginning on June 19, 1997, two actions were commenced in the United States
District Court for the Eastern District of New York involving an initial public
offering on June 28, 1996 of 10,750,000 shares of common stock of Donna Karan
International, Inc. at a price of $24 per share. The defendants in these cases
are Donna Karan International, Inc., certain directors and officers of Donna
Karan, and the underwriters of the offering, Morgan Stanley & Co., Bear Stearns,
Merrill Lynch & Co. and Smith Barney Inc. (the "Underwriter Defendants").
Plaintiffs allege, among other things, that defendants made false
and misleading statements in the prospectus and registration statement utilized
in the offering concerning Donna Karan's prospects for growth, inability to
implement expansion plans, and risks affecting Donna Karan's business expansion
plans. Plaintiffs allege violations by all defendants, including the Underwriter
Defendants of Sections 11 and 12(a)(2) of the Securities Act of 1933. Other
defendants are alleged to have violated Section 15 of the Securities Act and
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. With respect to the claims asserted against the
Underwriter-Defendants, including Bear Stearns, plaintiffs purport to represent
a class consisting of all persons who purchased Donna Karan common stock during
the period June 28, 1996 through May 7, 1997 pursuant or traceable to the
registration statement and prospectus issued in connection with the offering.
Plaintiffs seek damages in an unspecified amount, interest, rescissory relief,
and attorneys' fees and expenses.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
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Gregory P. Christofferson, et al. v. Bear Stearns & Co., Inc., et
al. On May 3, 1995, plaintiffs commenced an action in the Superior Court of the
State of California in and for the County of Los Angeles against Bear Stearns
and three Bear Stearns officers. The case involves an approach by plaintiffs to
Bear Stearns in 1993, seeking Bear Stearns' participation as an investment
partner or investment banker in acquiring a commercial real estate property
portfolio. Plaintiffs allege that Bear Stearns reviewed plaintiffs' written
portfolio evaluation materials and met with plaintiffs, and later advised
plaintiffs that Bear Stearns was not interested in pursuing the proposed
transaction. Bear Stearns subsequently represented the United States Postal
Service in an attempt by the United States Postal Service to acquire this
portfolio. Plaintiffs and the United States Postal Service, the latter advised
by Bear Stearns, ultimately negotiated a joint bid, which resulted in each group
acquiring a portion of the portfolio.
Plaintiffs current complaint alleges, among other things, fraud,
intentional interference with prospective economic advantage, misappropriation
of trade secrets and breach of implied and oral contract. Plaintiffs seeks
damages in excess of $25 million, plus punitive damages, attorneys' fees and
interest.
On March 26, 1996, Bear Stearns filed an answer denying liability
and assenting affirmation defenses. On March 3, 1997, Bear Stearns filed a
cross-complaint, alleging, among other things, that plaintiffs engaged in unfair
competition by threatening to sue and suing Bear Stearns and others to prevent
competition, and alleging that, if defendants are found to have breached a
contract with plaintiffs, the contract was induced by fraud and thus voidable.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
County of Orange v. Bear Stearns & Co., Inc., et al. On December
5, 1996, the County of Orange, California ("Orange County") and John Moorlach,
the County's Treasurer-Tax Collector, commenced an adversary proceeding in the
United States Bankruptcy Court for the Central District of California (the
"Bankruptcy Court") against twenty-six defendants, including Bear Stearns and
Bear, Stearns Securities Corp. (collectively, "Bear Stearns"). The action arises
in connection with a bankruptcy petition the County filed in the Bankruptcy
Court on December 6, 1994. On May 17, 1996, the Bankruptcy Court confirmed a
plan pursuant to which the County emerged from bankruptcy.
With respect to Bear Stearns the complaint alleges, among other
things, that certain securities transactions entered into between Orange County
(through its former Treasurer-Tax Collector, Robert Citron) and Bear Stearns
entitle Orange County to relief under Sections 502 and 510 of the Bankruptcy
Code, violated the Constitution and laws of California and are null and void,
and that Bear Stearns committed negligence by failing to inform the County that
the transactions were unsuitable and failing to obtain the informed consent of
Orange County's Board of Supervisors for these securities transactions. The
County seeks damages in an unspecified amount, declaratory relief and an order
disallowing any claims asserted against Orange County in its bankruptcy case by
Bear Stearns.
The parties in this action have entered into a stipulation
staying the proceeding pending the completion of other litigation, not involving
Bear Stearns.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
In re Daisy Systems Corporation, Debtor. On May 30, 1991, a
Trustee for Daisy Systems Corporation ("Daisy"), a debtor in bankruptcy, and
Daisy/Cadnetix, Inc. ("DCI") filed a complaint in the United States District
Court, Northern District of California, on behalf of Daisy and DCI against Bear
Stearns and six former directors of Cadnetix, Inc. ("Cadnetix") and/or a
Cadnetix subsidiary. The litigation arises out of Daisy's retention of Bear
Stearns in 1988 to provide investment banking services to Daisy with respect to
a
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potential merger of Daisy with Cadnetix. On March 20, 1992, a First Amended
Complaint was filed. On July 24, 1992, a Second Amended Complaint was filed.
The Second Amended Complaint alleges, among other things, that
Bear Stearns was negligent in performing its due diligence with respect to the
merger, and in advising Daisy that it was "highly confident" that financing
could be obtained to fund the merger. The Trustee alleges that Bear Stearns
breached fiduciary duties to Daisy, committed professional malpractice in its
efforts on Daisy's behalf, and made negligent representations upon which Daisy
relied, breached a covenant of good faith and fair dealing implied in its
contracts with Daisy, and should have its unsecured claim in the Daisy
bankruptcy proceeding equitably subro- gated to the claims of all other
claimants in the bankruptcy. The Trustee seeks monetary damages and exemplary
damages in an unspecified amount, as well as costs and expenses.
On May 13, 1993, Bear Stearns answered the Complaint, denying
liability and asserting affirmative defenses.
On February 3, 1993, the court dismissed plaintiffs' breach of
fiduciary duty and equitable subrogation claims. On August 12, 1994, the court
granted summary judgment dismissing all remaining claims against Bear Stearns,
and denying a motion by the Trustee to file a Third Amended Complaint.
On September 24, 1996, the United States Court of Appeals for the
Ninth Circuit affirmed the dismissal of the negligent misrepresentation claim,
reinstated the Trustee's negligence claim and reversed the denial of the motion
for leave to amend the breach of fiduciary duty claim, and remanded the case to
the district court for further proceedings.
On August 15, 1997, Bear Stearns filed an answer denying
liability and asserting affirmative defenses. The district court has set a trial
date of April 6, 1998.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
Del Rosario, et al. v. Bear Stearns & Co., Inc., et al. On March
7, 1997, three former Bear Stearns brokerage customers commenced an NASD
arbitration proceeding against Bear Stearns, a former Bear Stearns account
executive and Smith Barney, Inc.
The claimants allege, among other things, unauthorized wire
transfers and unauthorized and unsuitable trading in their accounts. The
claimants assert claims based upon fraud, churning, breach of the fiduciary duty
of care and good faith, negligence, breach of contract, failure to supervise the
claimants' accounts and conspiracy. The claimants seek damages in an unspecified
amount, but at least $20 million plus punitive damages.
On June 27, 1997, Bear Stearns filed an answer denying liability
and asserting affirmative defenses, and moved to dismiss certain damage claims.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this arbitration proceeding, intends to defend these claims
vigorously and believes that it has substantial defenses to these claims.
Bernard H. Glatzer v. Bear, Stearns & Co., Inc. On May 11, 1993,
Bernard H. Glatzer commenced an action in the District Court of Harris County,
Texas. On October 11, 1993, the case was removed to the United States District
Court for the Southern District of Texas, and on January 23, 1995 the case was
transferred to the United States District Court for the Southern District of New
York. Plaintiff alleges that he devised and presented "a novel, elegant,
original and unique business plan" for financing independent oil
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and gas production by independent oil and gas companies and presented this plan
to Bear Stearns on a confidential basis, and that Bear Stearns utilized
plaintiff's business plan as part of services provided by the Company to another
corporate entity.
Plaintiff's current pleading alleges, among other things, theft
and misuse of trade secrets, misappropriation, breach of fiduciary duty,
tortious interference with contractual opportunity, prospective business
relationship, business opportunity, contractual advantage and/or contractual
relations, unjust enrichment, quantum meruit/quasi-contract, fraud and
conspiracy. Plaintiff seeks damages in the amount of $200 million, as well as
exemplary or punitive damages, and attorneys' fees and expenses.
On July 21, 1997, Bear Stearns filed an answer denying liability
and asserting affirmative defenses.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
In re Granite Partners, L.P., Granite Corporation and Quartz
Hedge Fund. On April 7, 1994, Granite Partners, L.P., Granite Corporation, and
Quartz Hedge Fund (the "Funds"), three investment funds managed by Askin Capital
Management L.P. ("ACM") and David J. Askin ("Askin"), commenced a bankruptcy
proceeding in the United States Bankruptcy Court for the Southern District of
New York after suffering losses in mortgage-backed securities and related
instruments. Five actions involving Bear Stearns relating to the Funds are
pending. Four of these actions involve allegations that, among other things,
Bear Stearns, Kidder, Peabody & Co., Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation (the "Dealer Defendants") misrepresented, and/or
encouraged ACM to purchase, certain securities despite the alleged
inappropriateness of those securities for the investment funds ACM was managing,
that the Dealer Defendants allegedly provided inflated performance marks, that
the Dealer Defendants allegedly provided excessive financing to the Funds, and
that the Dealer Defendants otherwise departed from the standards of ordinary
care. The fifth of these actions also involves allegations that Bear Stearns,
among other things, made improper margin calls and wrongfully liquidated the
Funds' positions after the Funds defaulted on their obligations.
(i) Primavera Familienstiftung v. David J. Askin, et al. On
September 20, 1995, Primavera Familienstiftung, a purported investor in Granite
Corporation, amended its complaint in a previously commenced action in the
United States District Court for the Northern District of California to include
claims against the Dealer Defendants. On October 18, 1996, the action was
transferred to the United States District Court for the Southern District of New
York. On August 22, 1996 a motion to dismiss by the Dealer Defendants was
granted, with leave to replead. On November 8, 1996, a third amended complaint
was filed.
Plaintiff's current pleading alleges, among other things, that
the Dealer Defendants aided and abetted an alleged fraud by Askin and ACM (the
"Askin Defendants"). Previously alleged and dismissed claims include allegations
that the Dealer Defendants violated Section 10(b) of the Securities Exchange
Act, Rule 10b-5 promulgated thereunder and Section 20(a) of the Securities
Exchange Act, committed common law fraud, aided and abetted a breach of
fiduciary duty by the Askin Defendants, committed breach of contract and
violated Uniform Commercial Code provisions. Plaintiff purports to represent a
class consisting of all investors who purchased interests in the Funds between
January 26, 1993 and April 7, 1994. Plaintiff seeks compensatory and punitive
damages in unspecified amounts (the named plaintiff allegedly invested $1
million in the Funds), together with the costs and expenses of the action.
On June 9, 1997, this litigation was consolidated with the ABF
Capital action (described below) for pre-trial purposes.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
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(ii) ABF Capital Management, et al. v. Askin Capital Management,
L.P., et al. On March 27, 1996, certain other purported investors in the Funds
filed a lawsuit in the Supreme Court of the State of New York, County of New
York, against ACM and the Dealer Defendants. On April 24, 1996, the case was
removed to the United States District Court for the Southern District of New
York.
Plaintiffs' current pleading alleges, among other things, that
the Dealer Defendants aided and abetted an alleged fraud by ACM. Previously
alleged and dismissed claims include allegations that the Dealer Defendants
aided and abetted an alleged breach of fiduciary duty by ACM, were unjustly
enriched and violated the Racketeer Influenced and Corrupt Organizations Act
("RICO"). The suit seeks recovery of the amounts the plaintiffs paid for their
interests in the Funds (alleged to be approximately $230 million), an
unspecified amount of allegedly unjust enrichment, treble damages, punitive
damages of not less than $1 billion from each defendant, plus interest, costs,
attorneys fees and other unspecified damages.
On June 9, 1997, this action was consolidated with the Primavera
action (described above) for pretrial purposes.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
(iii) Montpellier Resources, Ltd., et al. v. Bear Stearns, et al.
On March 14, 1997, three purported investors in the Funds commenced an action
against ACM and the Dealer Defendants in the United States District Court for
the Southern District of New York. On June 2, 1997, the complaint was amended to
add sixteen additional plaintiffs.
Plaintiffs' allegations are substantially similar to those in the
ABF Capital action (as modified by the Court's ruling on the Dealer Defendants'
motion to dismiss in that action). Plaintiffs purport to represent a class
consisting of all investors who purchased interests in the Funds between January
1, 1991 and April 7, 1994. Plaintiffs seek recovery of their investments
(alleged to have been approximately $34 million for the named plaintiffs),
punitive damages of not less than $1 billion from each defendant, plus interest,
costs, attor- neys' fees and other unspecified damages.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
(iv) Richard Johnston, et al. v. Askin Capital Management, L.P.,
et al. On June 9, 1997, three purported investors in the Funds commenced an
action in the United States District Court for the Southern District of New York
against ACM and the Dealer Defendants. Plaintiffs' allegations are substantially
similar to those in the ABF Capital action (as modified by the Court's ruling on
the Dealer Defendants' motion to dismiss in that action). Plaintiffs seek
recovery of their investments (alleged to have been approximately $6 million),
punitive damages alleged to be no less than $100 million from each defendant,
plus interest, costs, attorneys' fees and other unspecified damages.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
(v) Granite Partners, L.P., et al. v. Bear, Stearns & Co. Inc.,
et al. On September 12, 1996, a Trustee appointed by the Bankruptcy Court filed
an adversary proceeding on behalf of the Funds against Bear Stearns and Bear
Stearns Capital Markets in the United States Bankruptcy Court for the Southern
District of New York.
On December 2, 1996, the reference of this case to the Bankruptcy
Court was withdrawn, and the case now is pending in the United States District
Court for the Southern District of New York. On March
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3, 1997, the Bankruptcy Court ordered that control of the litigation be
transferred from the Trustee to a Litigation Advisory Board (the "LAB")
consisting of seven members, including five purported investors in the Funds. On
August 4, 1997, LAB filed an amended complaint against Bear Stearns, Bear
Stearns Capital Markets, a Senior Managing Director of Bear Stearns, Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), a senior vice president of
DLJ, and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
The amended complaint alleges, among other things, that one or
more of the defendants induced and participated in breaches of fiduciary duty by
Askin and ACM, tortiously interfered with contracts between the Funds and ACM,
accepted payment for trades they knew ACM was not authorized to execute,
breached their contracts with and duty to the Funds through improper margin
calls and liquidations, and in other ways converted the Funds' property,
violated the Sherman Act and the Donnelly Act in connection with allegedly
collusive liquidations, improperly destroyed tape recordings, tortiously
interfered the contracts between the Funds and other dealers, committed common
law fraud, negligent misrepresentation and innocent misrepresentation, breached
warranties and unjustly enriched themselves. The suit now seeks, among other
things, actual and punitive damages in unspecified amounts (there is alleged to
have been approximately $400 million in equity invested in the Funds prior to
liquidation), rescission of the purchase prices paid by the Funds for certain
securities, treble damages for the antitrust claims, restitution for certain
profits and compensation made by the defendants in connection with the Funds,
plus interest, costs, attorneys fees and other damages.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
Henryk de Kwiatkowski v. Bear Stearns & Co., Inc. et al. On June
25, 1996, a Complaint was filed in the United States District Court for the
Southern District of New York by a former customer against Bear Stearns, Bear
Stearns Securities Corp., Bear Stearns Forex, Inc. and a registered
representative. On November 4, 1996, an Amended Complaint was filed.
Plaintiff's current pleading alleges, among other things, breach
of contract, breach of fiduciary duty, fraud, negligent misrepresentation,
negligence and violations of the Commodity Exchange Act. Plaintiff seeks to
recover at least $300 million in losses and at least $100 million in punitive
damages.
On August 28, 1997, the district court dismissed plaintiff's
breach of contract, fraud and negligent misrepresentation claims, and all but
one of plaintiff's Commodity Exchange Act claims. The court did not dismiss
claims for breach of fiduciary duty, negligence and violation of Section 40 of
the Commodity Exchange Act.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
In re Lady Luck Gaming Corporation Securities Litigation.
Beginning in March 1995, a series of actions were commenced in the United States
District Court for the District of Nevada involving an initial public offering
("IPO") of 4,500,000 shares of Lady Luck Corporation ("Lady Luck") on September
29, 1993. A Consolidated Class Action Complaint was filed on August 14, 1995,
and a Second Amended Class Action Complaint was filed on October 31, 1996. The
defendants are Bear Stearns, Oppenheimer & Co., Inc., Lady Luck and several
directors and officers of Lady Luck. Bear Stearns and Oppenheimer are sued in
their capacity as co-lead underwriters of the IPO.
Plaintiffs' current pleading alleges, among other things, that
the prospectus issued in connection with the IPO contained certain false or
misleading statements concerning Lady Luck and the casino- gaming industry as a
whole. Plaintiffs allege violations of Sections 11 and 12 of the Securities Act
and Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated
thereunder against Bear Stearns and Oppenheimer. Plaintiffs purport to represent
a class consisting of all persons who purchased shares of Lady
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Luck from September 29, 1993 to October 11, 1994. Plaintiffs seek unspecified
compensatory damages and any appropriate equitable relief.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
NASDAQ Antitrust Litigation. On December 16, 1994, a class action
complaint consolidating a series of previously filed actions was filed in the
United States District Court for the Southern District of New York. On August
22, 1995, plaintiffs filed a complaint entitled "refiled consolidated
complaint," which was further amended on July 21, 1997, in a complaint entitled
"amended refiled consolidated complaint." As amended, the complaint alleges that
over 30 market-makers, including Bear Stearns, engaged in a conspiracy with
respect to the "spread" between bid prices in so-called "odd-eighths". The
complaint alleges violations of antitrust laws and seeks damages in an
unspecified amount, treble damages, and declaratory and injunctive relief. On
November 27, 1996, the court certified a class consisting of certain persons who
purchased or sold certain securities on NASDAQ during specified time periods for
each security during the period from May 1, 1989 to May 27, 1994. On June 30 and
August 27, 1997, plaintiffs filed motions seeking court approval of settlements
totaling nearly $100 million entered into by plaintiffs and three of the
defendants in this action. The settling defendants do not include Bear Stearns.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims vigorously, and
believes that it has substantial defenses to these claims.
On July 17, 1996, the Antitrust Division of the United States
Department of Justice filed a civil antitrust complaint in the United States
District Court for the Southern District of New York against 24 firms that make
markets in NASDAQ securities, including Bear Stearns. The complaint alleges,
among other things, that these market maker defendants violated Section 1 of the
Sherman Act through a "common understanding" to follow a "quoting convention"
that the complaint asserts had inflated the "inside spread" (the difference
between the best quoted buying price and the best quoted selling price on
NASDAQ) in certain NASDAQ stocks. This allegedly resulted in investors having to
pay higher transaction costs for buying and selling stocks than they otherwise
would have paid. At the same time the complaint was filed, a proposed settlement
of the action was announced, pursuant to which the defendants in the action,
while admitting none of the charges, agreed not to engage in certain conduct.
The settlement provides, among other things, for the monitoring and
tape-recording by each of the defendants of not less than 3.5 percent, or a
maximum of 70 hours per week, of telephone conversations by its over-the-counter
desk traders, the provision to the Department of Justice of any taped
conversation that may violate the terms of the settlement, and for Department of
Justice representatives to have access, unannounced in advance, during regular
business hours, for the purpose of monitoring trader conversations as the
conversations occur.
On April 23, 1997, the district court approved the proposed
settlement.
On May 20, 1997, the plaintiffs in the class action filed in
connection with the NASDAQ Antitrust Litigation, who previously had intervened
in the civil antitrust action filed by the Antitrust Division of the United
States Department of Justice in order to object to the settlement of that
action, filed an appeal of the district court's approval of the settlement. On
May 21, 1997, the district court granted a stay, pending the outcome of the
appeal, of the portion of the district court's order approving the settlement
that provided for the tape recording of telephone conversations by defendants'
over-the-counter desk traders.
Parvus Co. Ltd. v. Bear Stearns & Co., Inc., et al. In March
1997, a former Bear Stearns account holder commenced an NASD arbitration
proceeding against Bear Stearns and a former Bear Stearns account executive.
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The claimant alleges, among other things, unauthorized wire
transfers from its account. The claimant alleges claims based upon breach of the
fiduciary duty of care and good faith, negligence, violation of NASD Rules, SEC
Rules and New York Stock Exchange Rules, breach of contract and failure to
supervise.
The claimant seeks damages in an unspecified amount, but at least $15 million.
On June 13, 1997, Bear Stearns filed an answer denying liability
and asserting affirmative defenses.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this arbitration proceeding, intends to defend these claims
vigorously and believes that it has substantial defenses to these claims.
* * *
The Company or a subsidiary of the Company also has been named as
a defendant in numerous other civil actions arising out of its activities as a
broker and dealer in securities, as an underwriter, as an investment banker, as
an employer or arising out of alleged employee misconduct. Several of these
actions allege damages in large or indeterminate amounts, and some of these
actions are class actions. With respect to claims involving the Partnership,
Bear Stearns has assumed from the Partnership, and has agreed to indemnify the
Partnership against, the Partnership's liability, if any, arising out of all
legal proceedings to which the Partnership is or was named as a party. In view
of the number and diversity of all of the claims referred to in this paragraph
and above, the number of jurisdictions in which these claims are pending and the
inherent difficulty of predicting the outcome of these claims, the Company
cannot state what the eventual outcome of these claims will be. The Company is
contesting the allegations in these lawsuits, and believes that there are
substantial defenses in these lawsuits.
The Company also is involved from time to time in investigations
and proceedings by governmental and self-regulatory agencies.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE BEAR STEARNS COMPANIES INC.
Registrant
By: /s/ Samuel L. Molinaro Jr.
------------------------------------------
Samuel L. Molinaro Jr
Senior Vice President - Finance and
Chief Financial Officer
Dated: October 7, 1997
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