Suit Against Deloitte in Bear Stearns Fraud Case Won’t Be Lifted – Judge
U.S. District Judge Robert Sweet in Manhattan said Friday Deloitte would have to remain defendant in a fraud case brought by Michigan Retirement System against Bear Stearns.
Sweet said the fraud case against the investment bank may proceed, giving the investors the chance to carry on with their planned securities class-action lawsuit against Bear Stearns and its outside auditor Deloitte. Bear Stearns’s investors claimed that its executives made misleading statements regarding the firm’s financial stability in the lead-up to the 2008 financial crisis.
According to the lawsuit led by Michigan Retirement System, Bear Stearns has inflated its stock price through several misrepresentations in the valuation of its mortgages that eventually hid the losses in the housing market. The investors added Bear Stearns’s outside auditors from Deloitte to the suit’s defendants for allegedly standing still while the investment bank misled investors.
The lawsuit said the audit reports of Deloitte were lacking in substance.
JPMorgan Chase & Co, which bailed Bear Stearns when it collapsed during the credit crunch, said in a statement that the lawsuit against the investment bank is meritless, adding that it would seek dismissal in the court. The court initially dismissed the Employee Retirement Income Security Act and derivatives lawsuits against Bear Stearns.
Deloitte also defended its role, saying in a statement “the court was not permitted to and did not consider whether those allegations actually are true or whether the plaintiffs have evidence to support their allegations.”
A spokesperson said in a statement the complaints were baseless and that Deloitte would seek the court to dismiss the case.
Bear Stearns was the first to declare bankruptcy from losses in mortgage at the start of the credit crisis in 2008, followed by Lehman Brothers and Merrill Lynch & Co Inc. The case against the investment bank is one of the largest fraud cases in the US filed by investors against firms and its outside auditors that allegedly concealed their finances prior to the credit crisis.
In mid December last year, State Attorney General Andrew Cuomo from New York accused Ernst & Young for turning a blind eye on the alleged fraud committed by Lehman Brothers to its investors.
Cuomo’s lawsuit charged Ernst & Young for allegedly ignoring red flags while Lehman Brothers misrepresented its finances prior to the 2008 global economic crisis, making it appear healthier when it actually was on the verge of collapse.