The Bear Stearns Lucky Bastards

In July 2007, the two hedge funds, with around $1.6 billion of investors’ money, began the process of being liquidated. During the fall of 2007, Bear Stearns, the parent company, sought to reach what seemed like arbitrary settlements with various investors in the funds, as a way of avoiding litigation with them, if possible. Those who invested in May or June 2007 and accepted in the offer got all their money back; those who invested between January 2007 and April 2007 and accepted the offer got two-thirds of their money back; and those who invested before January 2007 and accepted the offer received one-third of their money back.

Some corporate and institutional investors got some of their money back and some did not. No employees who invested got any of their money back from Bear Stearns, whether they lived in Massachusetts—like Doug Sharon, a longtime Massachusetts resident—or not, and otherwise could have participated in the Galvin settlement. Many former Bear employees who invested in the hedge funds believe the firm decided to settle with those investors, such as corporations and other large clients, who could be potential customers again and let the former employees twist in the wind.

Galvin’s November 2008 settlement with JPMorgan Chase put $9.3 million back in the pockets of the fortunate Massachusetts investors, giving them 100 cents on the dollar and, in many cases, topping up their original settlements with Bear Stearns. But the settlement has led to some unfortunate and quirky developments. One investor who had established trust funds for his two children in Massachusetts, which invested in the Bear Stearns hedge funds, could not get his own money back but got money back for the trusts. When he called David Weintraub, the lawyer at JPMorgan Chase who is handling the investor deals, he was told “to pound sand” and “do what you have to do” but he would not be allowed to participate in the Massachusetts deal. Weintraub told other investors from outside Massachusetts the same thing. He did not respond to a call seeking comment.

Then there is the case of Daniel Snyder, a billionaire Washington businessman and Washington Redskins owner. He invested more than $1 million in the Bear Stearns’ hedge funds and has only received a portion of his money back. When he and his lawyers caught wind of the Galvin settlement, he understandably wanted to know if he could somehow participate in it, too. But his lawyers got no satisfaction, either. Look for Snyder to bring the Massachusetts settlement to the attention of the attorney general in Maryland, where he is a resident. Through a spokesman, Snyder declined to comment for this article.

Other than the “gun to our head” comment, just why JPMorgan Chase agreed to the settlement with Galvin is still a mystery. There is speculation that one or several politically prominent Massachusetts residents who were investors in the hedge funds forced Galvin to play hardball with JPMorgan Chase. Brian McNiff, a press spokesman for Galvin, said he was too busy to comment on the settlement. Mary Sedarat, a spokesman for JPMorgan Asset Management, declined to comment.

Whether the Massachusetts settlement will serve as a template for the vast array of less-fortunate investors in the Bear hedge funds from other states to push for a similar settlement with JPMorganChase remains to be seen. Michael Bamberger, a spokesman for New York State Attorney General Andrew Cuomo, did not respond to a request for comment about whether Cuomo would pursue a similar legal settlement on behalf of New York investors.

William D. Cohan, a former senior-level M&A banker on Wall Street, is the author of The Last Tycoons: The Secret History of Lazard Freres & Co. Cohan's House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, will be published by Doubleday in 2009. He also writes for Fortune, ArtNews, The Financial Times, and The Washington Post.