Corporate & Securities Law

In "The Rise and Fall of Bear Stearns," Alan 'Ace' Greenberg - the man most people credit for the "rise" part of the Bear Stearns story - pulls few punches.

                                        Ace Greenberg (once upon a time)

Released earlier this month, "The Rise and Fall of Bear Stearns" includes what at this point (after more than two years of exhaustive coverage of, well, the rise and fall of Bear Stearns) are familiar descriptions of the career and business philosophy of Alan Greenberg. 

In brief: 

• Greenberg joined Bear Stearns in 1949. From 1978 until Bear Stearns went public in 1985, Ace Greenberg was the investment bank's senior (or managing) partner. From Bear's 1985 IPO until 1993, Greenberg was CEO and Chairman.  In '93, Greenberg was infamously pushed out of the CEO job by fellow Bear Stearns executive Jimmy Cayne. Greenberg remained Chairman until 2001, when Cayne took over that role. From 2001 until Bear Stearns collapsed in 2008, Greenberg's title was Executive Committee Chairman.  He also "presided" over the firm's weekly risk committee meetings.

• Regarding Greenberg's management/business philosophy, Greenberg described how he wanted Bear employees to be aggressive -but never reckless- risk-takers.  Greenberg encouraged his people to look for opportunities to take risks that had a high potential payoff, but he also required that losses be taken quickly when things did not go as planned.  The point of cutting losses was to keep small losses from turning into big ones. Greenberg's highest priority, he says, was to make sure Bear Stearns never took risks that could jeopardize the survival of the company.  

By far the most interesting parts of "The Rise and Fall of Bear Stearns" are the countless occasions in which Greenberg attacks the character and competence of Jimmy Cayne.

• At various points in the book, Greenberg describes Cayne as a greedy, selfish, conniving, deceitful, insecure, manipulative kiss-ass.  Also, according to Greenberg, Cayne cultivated relationships with people he believed could help advance his career, only to stab those same people in the back when Cayne no longer had any use for them.  

               Jimmy Cayne poster 

• Greenberg also calls Cayne a liar, capable of incredible "fabrications," and a relentless self-promoter. Ultimately, Greenberg believes, Jimmy Cayne made business decisions based on how they impacted him, rather than what was best for Bear Stearns and its shareholders.

Does "The Rise and Fall of Bear Stearns" make a case against Ace Greenberg for breach of fiduciary duty? 

Greenberg's assessment of the character (or lack thereof) of Jimmy Cayne rings true to the staff of Wall Street Law Blog. But it seems to us that "The Rise and Fall of Bear Stearns" is also an indictment of Greenberg himself (and the rest of Bear's Executive Committee).

After all, members of senior management were fiduciaries of Bear's public shareholders. Fiduciaries must act in the best interests of those they serve. 

Despite his feelings about Cayne, Greenberg and the other Executive Committee members accepted huge cash bonuses that flowed from Cayne's reckless (and likely fraudulent) mismanagement in the years before Bear Stearns collapsed.  Greenberg and other Executive Committee members also made tons of money selling Bear Stearns stock at artificially high prices in the years before Bear Stearns collapsed.  

Greenberg may very well have voiced his concerns within the cloistered world of Bear's small and extremely powerful Executive Committee.  From the perspective of former public shareholders of Bear Stears, however, Greenberg silently engaged in massive profit-taking during the housing bubble era.  

In making after the fact disclosures about Jimmy Cayne and his role in Bear's collapse in "The Rise and Fall of Bear Stearns" isn't Ace Greenberg admitting that he knew there were problems with Cayne's leadership long before Bear Stearns collapsed?  Don't Greenberg's admissions mean that he breached his fiduciary duty to always act in the best interests of the company's shareholders?  We think so.

Wall Street Law Blog

Published by The Sherman Law Firm