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Bear Stearns Ordered to Pay $27.3 Million in Damages to Investors for Misrepresenting Its Investment Strategies
(Marketwire Via Acquire Media NewsEdge) MIAMI, FL, February 26 / MARKET WIRE/ --
After 17 years of litigation, Bear Stearns & Co.,
one of the largest global investment firms in the world, was ordered to pay
$27,353,000 in damages to the state of Delaware, as receiver for National
Heritage Life Insurance Company (NHL), a Delaware company with principal
offices in Orlando, Florida. According to the recent decision by Ninth
Judicial Circuit Court General Magistrate James E. Glatt, Jr., Bear Stearns
misrepresented the nature of its investment strategy to NHL.
The 9th Judicial Circuit Court determined that Bear Stearns & Co. breached
its contract and its duty of good faith and fair dealing by failing to
accurately represent their investment strategy and projected returns to
NHL. Forensic accountant Stewart Appelrouth, a partner with the accounting
firm of Appelrouth Farah & Co., was hired by the plaintiff's attorney,
Thomas Equels, to determine the total amount of damages and provide expert
testimony on the monies lost in the investments. Throughout the trial, Mr.
Appelrouth's forensic investigation, analysis and testimony helped
determine how much the plaintiff's reliance on Bear Stearns cost them by
analyzing the sophisticated financial investments. Ultimately, Mr.
Appelrouth's expert analysis and testimony was vital in Judge Glatt's
decision to sustain his calculation of the damages.
In early 1991, after reports that National Heritage Life Insurance Company
was having internal financial problems, the Insurance Commissioner of
Delaware issued an Order of Confidential Supervision for the troubled
company. Under the Order of Confidential Supervision, NHL was required to
have a financial advisor to counsel on its investments and as a result,
entered into an agreement with Bear Stearns & Co., based on the
recommendation of an NHL employee that had a personal relationship with
someone at Bear Stearns. Court testimony later revealed that Bear Stearns
knew of the company's financial situation and Order of Court Supervision
and aggressively solicited NHL's business.
According to the lawsuit, Bear Stearns claimed that it presented an
investment strategy of low risk investments to assist NHL's goal of
exceeding its financial obligation to its policy holders. Those investments
included, among others, collateralized mortgage obligations (CMO) and a
Residential Funding Corporation (RFC) bond, which were underwritten and
marketed solely by Bear Stearns, who also controlled all relevant
information provided to NHL. Mr. Equels retained Mr. Appelrouth for his
expert knowledge and continuous experience with CMO from the time of their
inception in 1980. In addition to providing investments for purchase, Bear
Stearns also provided extended analysis, projected return on investments
and future potential earnings analysis using proprietary software. Court
testimony also revealed that Bear Stearns consistently provided NHL with
inaccurate, misleading and deceptive financial information that they knew
NHL had no way of verifying.
Unbeknownst to NHL and contrary to their proposal, the investments
recommended and selected by Bear Stearns were high-risk and extremely
volatile. Ultimately, NHL's investments fell short of Bear Stearns
projections and they were unable to recoup their original investments,
resulting in a loss of millions of dollars. NHL's ultimate demise and
insolvency was a result of Bear Stearn's flawed investment advice to
purchase high risk, volatile securities.
All of the information provided to NHL on the investment's projected
performance came directly from computer modeling done by Bear Steams'
proprietary Financial Analytical Structured Transactions (FAST) group. NHL
was completely dependent on Bear Stearns for the explanation of these
analyses.
On April 15th, 2008 the Ninth Judicial Circuit Court determined that Bear
Steams consistently provided analyses and financial information which was
deceptive, misleading and inaccurate. The $27,353,000 award for the
plaintiffs was settled during mediation in October 2008.
About Stewart Appelrouth
Stewart Appelrouth co-founded Appelrouth, Farah & Co., where he has
developed a reputation as one of the most creative financial and accounting
advisors in South Florida. Appelrouth's hands-on, direct approach to
financial challenges has provided his clients with solutions to seemingly
insurmountable problems. His accounting experience includes over fifteen
years of providing specialized services such as litigation support,
auditing, fraud investigation, and business valuation services as well as,
business and tax consulting. Mr. Appelrouth received his Bachelor of
Science degree from Florida State University, Master's degree from Florida
International University and is a Certified Public Accountant, Certified in
Financial Forensics, Certified Fraud Examiner, Certified Valuation Analyst,
Certified Family Law Mediator and Diplomate of the American Board of
Forensic Accounting.
About Appelrouth Farah & Co.
Appelrouth Farah & Co., founded in 1985 by Stewart Appelrouth and Carlos
Farah, is a full service accounting firm specializing in auditing,
taxation, litigation support, business valuation and fraud examination.
The firm's partners and professionals have experience in many areas of
accounting and tax that will help maximize opportunities and ease the risks
of today's challenging economic environment. Appelrouth, Farah & Co.
services the full spectrum of private and public sectors, business
conditions, geographical locations and market conditions. For more
information please visit www.appelrouth.com or call 1(877) 446-0999.
Ian C. Torres
Office: (305) 663-4227
Mobile Phone: (305) 807-0224Email Contactwww.JBGcommunications.com
Copyright ? 2009 Marketwire
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