One thing is certain about the collapse of Bear Stearns (BSC): It will generate hundreds of millions--if not billions--of legal fees. Some of the fees will likely go to attorneys for CEO Alan Schwartz, as he defends the inevitable allegations that he lied about the firm's financial condition on CNBC two days before it collapsed.
Did Alan Schwartz actually lie? Or was he just as blindsided by the sudden Bear collapse as shareholders, employees, and everyone else?
Here are the key parts of the transcript and published statement.
"Bear Stearns' balance sheet, liquidity, and capital remain strong...
Our liquidity position has not changed at all, our balance sheet has not changed at all..."
Two days later, Bear Stearns effectively went bankrupt.
We realize this will be an unpopular conclusion, but in the absence of other evidence, we think there is almost zero chance that Alan Schwartz actually lied on CNBC. We think, at the time of the interview, he actually believed that Bear Stearns was in fine shape (a colossal mistake, but not lying). Why? Two reasons:
1. Jeff Skilling, the former CEO of Enron, is serving a two-decade jail sentence for lying to investors before the collapse of a similarly leveraged business. Alan Schwartz, like all of today's CEOs, has to have understood what was at stake. Today's CEOs don't just "go on TV"--especially when their firms are under fire. Before talking to CNBC, Schwartz would have been lawyered and PRed up the wazoo. He would have had the latest information available to the firm. Unless he was brain dead, he would not have made anything he believed could be construed as a "false and misleading statement." (Yes, he would have known that it was important to be decisive and confident about a moving picture, but if you're going to start throwing CEOs in jail for being decisive and confident in the face of changing conditions, we might as well close up capitalism.)