SEC Eyes Recent Comments by Bear Stearns

The Securities and Exchange Commission said Tuesday that its lawyers will "favorably" factor in the circumstances of the Bear Stearns & Cos. takeover in deciding whether to act against its new owner.

The agency's enforcement division has written a letter to JPMorgan Chase & Co., which agreed to acquire Bear Stearns at the fire-sale price of $260.5 million Sunday in an emergency deal backed up by the Federal Reserve. The letter from the SEC staff discussed "investigations and potential future inquiries into conduct and statements by Bear Stearns" before the announcement of the takeover, the agency said.

The SEC mentioned the letter in a "frequently asked investor questions" release about the one-of-a-kind bailout.

In the letter, the SEC enforcement attorneys "declined to provide assurances about possible future enforcement actions" and said it would be premature to reach conclusions about their inquiry. However, they added that the staff "would favorably take into account" the circumstances surrounding the takeover when considering whether to recommend enforcement action against JPMorgan for public statements made by Bear Stearns.

Spokesmen for JPMorgan Chase didn't immediately return a call seeking comment.

The SEC has in the past shown leniency toward companies that acquire firms that may have violated securities laws, since the parent company didn't play a part and the acquisition ceases to exist as an independent entity. The agency, however, still has brought enforcement actions against individuals.

Last Monday, when rumors started to circulate on Wall Street that Bear Stearns was short on liquidity and might not have enough cash to do business, the firm's executives tried to tamp down the negative chatter with a news release. It said Bear Stearns' "balance sheet, liquidity and capital remain strong. ... There is absolutely no truth to the rumors of liquidity problems that circulated today in the market."

On Wednesday, Bear Stearns CEO Alan Schwartz appeared on CNBC to reassure investors that the firm had ample liquidity and said he was "comfortable" that it would turn a profit in its fiscal first quarter. By Thursday, Bear Stearns' solvency was being called into question and by Friday it told regulators it was ready to file for bankruptcy.

Bear Stearns' shares traded Monday at $62.30 and remained close to that level until Thursday, when they dipped to $57. On Friday, they plunged to $30.