Was Bear Stearns Sabotaged?

Fascinating feature in the upcoming issue of Vanity Fair, claiming that speculators deliberately drove Bear Stearns out of business by creating a panic through clogging up Bear Stearns trades, then leaking the problems to a gullible, all-too-willing press.
Aside from the “inside baseball” discussion on the personalities of the firms various executives and their hardball tactics, how the Treasury Secretary got involved and his role, plus some put downs of CNBC’s lack of “adult supervision”, the real story is an on-going SEC investigation of whether outsiders deliberately caused Bear Stearns collapse, with its incredible impact on the entire world’s financial markets, and the American economy.

From the article: “ ‘Something happened Monday that triggered this mess,’ says one Bear executive who has spoken to the S.E.C. “It was as though a computer virus had been launched. Where the hell was this coming from? Who started it? We tried, believe me, but we could not track it down. We know lots of big hedge funds were spreading rumors, but how can you pursue that? Only the S.E.C. can, and they’re all over this.”
At the heart of this theory are the “novation” requests that began to pick up steam that Tuesday and Wednesday. As Bear executives later analyzed these trades, they discovered the overwhelming majority had been made with just three firms: Goldman Sachs, Credit Suisse, and Deutsche Bank.

Schwartz came to believe this was no accident. In his mind, the flood of novation requests was designed to force at least one of the three firms to put a temporary halt to accepting them, which is what happened: Goldman and Credit Suisse did. News of that halt not only swept Wall Street trading floors, it appeared to gain credence the next day when David Faber asked Schwartz about it on CNBC. “I like Faber, he’s a good guy, but I wonder if he ever asked himself, ‘Why is someone telling me this?”’ a top Bear executive asks. “There was a reason this was leaked, and the reason is simple: someone wanted us to go down, and go down hard.” (Faber says his reporting was accurate, and arose from talks with a source he has known for 20 years.)
But who? According to one vague tale, initially picked up at Lehman Brothers, a group of hedge-fund managers actually celebrated Bear’s collapse at a breakfast that following Sunday morning and planned a similar assault on Lehman the next week. True or not, Bear executives repeated the story to the S.E.C., along with the names of the three firms it suspects were behind its demise. Two are hedge funds, Chicago-based Citadel, run by a trader named Ken Griffin, and SAC Capital Partners of Stamford, Connecticut, run by Steven Cohen. (A spokesman for SAC Capital said the firm “vehemently denies” any suggestion that it played a role in Bear’s demise. A Citadel spokeswoman said, “These claims have no merit.”) The third suspect, at least in Bear executives’ minds, is one of its main competitors, Goldman Sachs. (“Goldman Sachs was supportive of Bear Stearns,” says a Goldman Sachs spokeswoman. “There is no foundation to rumors that we behaved otherwise.”) Several Bear executives also named an individual they believed was spreading rumors about them that week, Jeff Dorman, who briefly served as global co-head of Bear’s prime brokerage business until resigning to take a similar position at Deutsche Bank last summer. “We heard Dorman was saying things last summer,” says a Bear executive. “At the time we reached out to Deutsche Bank and told them he better stop it.” (Asked about the allegation, a Deutsche Bank spokeswoman acknowledged that Bear had sent its executives a letter last August asking Dorman not to solicit its clients, as he had agreed upon leaving Bear. Deutsche Bank replied that he wasn’t. The exchange didn’t explicitly address what Dorman might have been saying about the firm, nor would the spokeswoman.)
Today, many of Bear Stearns’s former employees are out of work. The firm has effectively disappeared into the maw of J. P. Morgan along with a number of key executives, including Ace Greenberg, who became a Morgan vice-chairman, and Alan Schwartz, who will probably take a position in the investment-banking department. Maybe the S.E.C. will figure out whether Bear was murdered. But maybe it won’t. Even those who believe the firm was the victim of a predatory raid have their doubts it can ever be proved.

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