WASHINGTON – Montana Sen. Jon Tester on Thursday called for the government to investigate the downfall of investment bank Bear Stearns and whether it was related to insider trading.
Bear Stearns informed the government last month that it was on the verge of having to file for bankruptcy protection because nervous creditors were demanding to be repaid. The investment house was then purchased by JP Morgan Chase & Co. with assistance from the government in the form of a loan backed by $30 billion of Bear Stearns assets.
The company had a stock price around $150 per share a year ago but was sold for $10 a share, becoming the biggest victim of a severe credit crisis that hit financial markets in August.
Tester, a member of the Senate Banking Committee, sent letters to Attorney General Michael Mukasey and Christopher Cox, the chairman of the Securities and Exchange Commission, asking them to investigate whether illegal insider trading led to the bank’s demise. He was the first senator to ask for such an investigation, according to his office.
“If there was insider trading and market manipulation, the proper law enforcement authorities of the United States government must respond with appropriate action and prosecute any wrongdoing to the fullest extent of the law,” Tester said.
Alan Schwartz, president and CEO of Bear Stearns, has said rumors and speculation about the company’s financial stability led to “a run on the bank.”
The SEC declined to comment on the letter, and the Department of Justice said it had not received it.
A House committee is conducting its own investigation of the deal. Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, is questioning the Federal Reserve’s unilateral decision to let BlackRock Inc. manage the $30 billion in assets as part of the government-orchestrated rescue.
At a Senate hearing last week, Federal Reserve Chairman Ben Bernanke and the Bush administration defended the decision to rescue the bank amid questions by lawmakers about why the government was helping Wall Street investment houses but not people on Main Street.