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Lawyers are predicting that JPMorgan Chase & Co.’s stock-for-stock buyout of The Bear Stearns Companies Inc. at the bargain-basement price of about $2 a share is likely to generate a wave of lawsuits against Bear Stearns by shareholders and employees. JPMorgan, which expects to close the deal by the end of the second quarter, expects $6 billion worth of pretax costs stemming from the transaction. JPMorgan said those costs will come from litigation, reconciling the two company’s accounting systems and consolidation costs. Bear Stearns’ shareholders must still approve the deal, which includes up to $30 million in financing from the Federal Reserve. Banks with major subprime exposure are already facing dozens of lawsuits, said Charles Casper, a class action attorney at Philadelphia’s Montgomery, McCracken, Walker & Rhoads. “Given the dramatic drop in the value of Bear Stearns’ stock last week, we can expect that plaintiff securities lawyers will see if they can put together a securities lawsuit,” Casper said. It’s already started. Plaintiffs’ law firm Coughlin Stoia Geller Rudman & Robbins threw down the gauntlet late Monday afternoon when it filed a lawsuit against Baer Stearns for shareholder Eastside Holdings Inc. in federal court in New York. Eastside Holdings Inc. v. The Bear Stearns Cos. Inc., No. 08-cv-02793 (S.D.N.Y.). The purported class action claims that Bear Stearns and certain officers and directors violated the Securities Exchange Act of 1934 through false and misleading statements about the company’s financial results. The accuses the company and officers of not informing the market about problems with the company’s hedge funds related to the subprime mortgage market decline. The lawsuit covers buyers of Baer Stearns’ common stock between December 14, 2006 and March 14, 2008. Duty to shareholders? During a March 16 JP Morgan conference call about the acquisition, a couple of participants questioned why JPMorgan was only offering Bear Stearns shareholders $2 per share when Bear Stearns’ book value, or its value according to the company’s balance sheet, had recently been reported as $84 per share. Michael J. Cavanagh, JPMorgan’s chief financial officer, said during the call that the deal price reflected his company’s duties to its own shareholders. “We did extensive work over a short period of time to get comfortable with putting together a transaction athat made sense all around,” Cavanaugh said. “We’re looking at duties to [our] shareholders. The deal we laid out didn’t result in the abilty to pay more than the modest amount that was paid to Bear stearns shareholders.” The company’s stock has ranged from $2.84 to $170.23 over the past 52 weeks. It closed at $30 on March 14 and $4.81 on March 17. Anytime a company’s stock price drops precipitously creative plaintiffs lawyers will develop a theory of liability, said Ivan B. Knauer, a Washington, D.C.-based partner in the commercial litigation practice group of Philadelphia’s Pepper Hamilton. “This situation is no different,” Knauer said. “The question will be, as it always is, who knew what when.” Bear Stearns and JPMorgan declined to comment beyond the conference call requesting comment.

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