A court has ruled that the Plaintiffs in one of the largest U.S. investor lawsuits arising out of the financial crisis can proceed. The case was filed against fallen investment bank Bear Stearns and its outside auditor, Deloitte & Touche. The court’s decision means that one-time Bear Stearns investors can move ahead with the securities class-action fraud case. But, it should be noted that the judge threw out two related lawsuits that had been rolled into the litigation. The investors allege that former Bear Stearns chiefs painted a wildly-misleading picture of the firm’s finances ahead of its March 2008 fall from grace.
In his ruling, U.S. District Judge Robert Sweet refused to dismiss the lawsuit led by the Michigan Retirement System, which held Bear Stearns shares in its portfolio. Judge Sweet tossed out the two related cases. One was a separate investor lawsuit and the other was brought on behalf of Bear employees who held the firm’s stock in a retirement plan. The allegation that Bear Stearns and top executives inflated the investment bank’s stock price by using misleading mortgage valuations to conceal potential losses in the housing market is a key issue in this securities fraud case.
The investors also accuse Deloitte of recklessly ignoring red flags about Bear’s financial statements and failing to adequately scrutinize its mortgage valuation models. It’s alleged that Deloitte’s audits “were so deficient that the audit amounted to no audit at all.” The case is pending in the U.S. District Court, Southern District of New York.
Source: Insurance Journal
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