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Bear Stearns & Co. Inc. Chairman Alan C. Greenberg can be deposed to learn whether he had any knowledge about an introducing broker who allegedly defrauded hundreds of investors in the Middle East. Magistrate Judge Henry Pitman of the U.S. District Court for the Southern District of New York ruled that Greenberg must answer questions concerning Ahmad Ihsan el-Daouk, a broker and investment advisor who allegedly used accounts at Bear Stearns and Lehman Brothers Inc., to execute a complex $100 million fraud scheme involving as many as 260 investors. But Pitman also ruled in A.I.A. Holdings S.A. v. Lehman Brothers, 97 Civ. 4978, that the deposition cannot be used to harass Greenberg, and he limited the subject matter and duration of the questioning. Plaintiffs filed suit in 1997 alleging, among other things, common law fraud by the two brokerage houses. They charged that Daouk, from 1988 through 1992, induced them to open accounts with Lehman Brothers and then altered forms or completed account forms so that all correspondence from Lehman Brothers to the customers was sent to his address. Plaintiffs charged that Daouk then churned accounts, shifting losses from his own accounts at Lehman Brothers to the accounts established for the plaintiffs. Plaintiffs also said that he took profits from his customers’ accounts and credited them to his own accounts, and that he maintained the scheme by sending forged statements to reassure his clients they were doing well. The complaint charged that after Lehman Brothers discovered some of Daouk’s activities in 1992, he spent the next three years doing the same thing using Bear Stearns accounts. Both houses were charged with breach of contract, negligent supervision of Daouk, and aiding and abetting his activities. In 1999 U.S. District Judge Lawrence McKenna of the U.S. District Court for the Southern District of New York dismissed counterclaims brought by the brokerage houses against the plaintiffs. In discovery, plaintiffs’ claimed that Greenberg asked the director of his futures department to prepare a memorandum about Daouk and one of his affiliated entities in 1995. They also claimed that two plaintiffs had direct contact with Greenberg concerning Daouk, also in 1995. Judge Pitman said that Greenberg submitted an affidavit in which he “claims to have no recollection of any of the facts underlying this litigation,” the memorandum or the alleged contact with the two plaintiffs. The memorandum, Pitman said, “supports an inference that, at least in 1995, Greenberg had actually considered at least some of the allegations that gave rise to this action and participated in internal discussions of those alleged facts.” And even though Pitman said he had “no reason to doubt the veracity of Greenberg’s affidavit,” he said the plaintiffs are “entitled to an opportunity to refresh Greenberg’s memory with respect to these events.” Pitman said further that in addition to the two-hour limitation on the deposition, questioning will be limited to the memorandum and Greenberg’s contacts, if any, with the two plaintiffs. In other rulings, Pitman ordered Bear Stearns to turn over to the plaintiffs a 1995 audio tape that the brokerage house had sought to shield under the work product privilege. He said Bear Stearns did nothing but label the tape “work-product” in the index. Saying that the “dearth of information in the index is so complete that the listing is the functional equivalent of no listing at all,” Pitman deemed Bear Stearns to have waived the privilege. Finally, Pitman rejected a discovery request made by the plaintiffs for all complaints filed against introducing brokers affiliated with the brokerage houses — information they hoped would reveal “similar acts” by the firms. Pitman found that even though the complaints might have some probative value, it was outweighed by the burden and expense of complying with the request. Representing the plaintiffs were Peter N. Wang of New York’s Friedman, Wang & Bleiberg, and K. Chris Todd of Wahsington, D.C.-based Kellogg Huber Hansen Todd & Evans. Jayant W. Tambe of Jones, Day, Reavis & Pogue and Robert W. Gaffey of Layton, Brooks & Hecht represented Lehman Brothers. Stephen L. Ratner of Rosenman & Colin represented Bear Stearns.

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