Two best-selling books describe the decline and fall of Bear Stearns, once of one of Wall Street's most profitable and aggressive investment banks. House of Cards and Street Fighters detail the culture of arrogance and greed that prevailed at Bear and the contempt with which they treated so many of their clients, not to mention each other. The two dominating personalities at Bear that play larger-than-life roles in both narratives are its legendary chairman, Ace Greenberg, and its bridge-playing CEO, Jimmy Cayne.
One would have thought that given the colossal humiliation of having imploded and been sold for $2 a share in March of 2008 and having served as the first collapse in the deck of cards that nearly brought down the US economy, the greedy sharks at Bear would have learned a lesson. Surely they have learned to shown some humility and treat their customers with respect.
Not a prayer.
I am a witness that Bear has, if anything, grown more arrogant, more contemptuous of its customer base, and more greedy, than ever.
I have been a customer of Bear Stearns for about seven years. My wife and I have all our retirement savings in two IRA's in the bank. Our accounts were being personally managed by Ace Greenberg. I respect Ace because of his strong record of philanthropy and devotion to the Jewish community. Unfortunately, this never translated into having any real time to discuss our accounts. Ace was always warm and friendly to me and always took my calls. But sixty conversations were the norm even when the shares he bought for us were plummeting. With about two hundred thousand dollars in both accounts, I was a minnow in a sea of Ace's whales. So I didn't expect much and was grateful for whatever morsels of attention I could pry.
Our accounts never performed particularly well under Ace, but I bore with it because I was honored that a legend of his stature and a man of such geninune philanthropy personally looked after our accounts.
But when Wall Street began to decline, our accounts dropped catastrophically. Ace had invested nearly all our money in large cap stocks which took the biggest beating in the markets. There was little to no diversification. I called Ace several times to discuss moving the money into other areas. As usual I got very little time, just an assurance that I owned what he owned.
Growing increasingly worried at our dwindling portfolio, I bumped into another Bear trader, Matt Zimmerman, at a friend's birthday party. For the next few months he made a play to get our accounts. He emailed me, called my wife, and did everything possible to convince us that Ace was wrong for us and although he was a very junior trader he had the time to really take an interest in our accounts. He told us that Ace was hurting our money by concentrating everything in large caps. He promised us the world. He was going to diversify, he worked with people in Europe, he had investment connections in the Far East. In short, he had access to every strata of financial instrument. We were going to be a lot better off with him.
By April 2009 my wife and I had lost approximately forty percent of all our money with Ace. Matt continued to press us to move to him. He told me to inform Ace that we were making a change and he would take it from there. I informed Ace that given the catastrophic losses we were suffering we thought it best to make a change. Matt got in touch with Ace, moved our accounts, and that's when the fun began.
We thought that having lost such huge amounts with Bear was bad enough. We were about to discover the greed of a bank that will do anything to milk whatever you have left. Matt, after promoting himself to us as a portfolio manager who provided the same service as Ace, only with greater diversification and much more time, arranged to speak with us by phone. He said that we had to liquidate our positions and move our money to investments he would be recommending. I listened as he went through all the stocks that he suggested we sell. We took his word for it and agreed.
But the next day he called and said that he was moving our money into mutual funds. I was confused. Mutual funds? If I wanted that, I told him, I would have gone to Fidelity, where we once had our money. No, I explained, we wanted him to perform the function he had represented to us. We wanted a personal portfolio manager who would individually look after our investments, like Ace had before. 'Matt, that's what you told us you would do. So what's going on?' No he said, he doesn't do that. He is going to put most of our money in mutual funds. It was at this point that I got suspicious. What were the fees involved in having someone else look after our money? And it was then that I discovered that I had been had. That I was in the hands of a Wall Street shark whose desire was to bilk me for as many fees that he could gouge from me. He informed me that first there would be a 1.5% fee on all the money in the accounts. Then, there was a fee of $75 per transaction from all the stocks we had sold the day before. Then, there would be an approximately 2% fee for the mutual funds. I finally got it. I was the mark. I was the sucker who was in this guy's clutches. I was being triple charged for the same service.
I protested. If you're not managing my money and simply putting it into a mutual fund, then why are you charging me a management fee in addition to the mutual funds fee? In fact, I added, this is exactly the reason that NY Attorney General Andrew Cuomo was suing Ezra Mirken. It was not because Mirken had given his funds to Bernie Madoff who had promptly stolen them, but rather that Mirken charged his clients management fees when he never managed the money but simply passed it all to Madoff. Matt started getting flustered. I told him I was being gouged and that it was scandalous that he had liquidated our portfolio to make as many fees as possible without informing us. I demanded to speak to his superior.
The next day Matt called me with Ivan Alfaro on the line. Rarely in my life have I spoken to with the level of contempt and condescension employed by Mr. Alfaro. He made me feel like an unimportant, stupid bumpkin, ignorant of the vaulted ways of Wall Street. He justified all the fees, except for the transaction selling fees admitting that Matt should never have charged us since he was liquidating the position to place the money in a managed account. With the exception of that admission, he interrupted and talked down to me. He told me that I ought to get another manager if we weren't happy with Matt. I was beside myself and demanded that I speak to someone else. He gave me the name of Gary Munowitz but with no phone number.
I called Bear's general switchboard and after much trial and error got through to Mr. Munowitz, a Senior Managing Director. He treated me just as contemptuously, told me he had no time to speak to me, and said I should call him after the weekend. I made it clear to him that it was his job to investigate and get back to me.
A few days later Mr. Munowitz called me with Mr. Steven Longo, VP and Associate General Counsel at JP Morgan Chase. They told me that Matt had done nothing wrong. Bear would take off the selling transaction fee for the liquidated shares but would do nothing else. I told them that Mr. Zimmerman had utterly misrespresented himself to us as a portfolio manager. We wanted was to restore the account to the exact position before Mr. Zimmerman had sold my shares, especially now that there had been a market rally that we had missed out on. They refused.
I made it clear that if forced to I would take legal action to defend my rights.
It was at this point that something so surreal happened that you will find it incredulous to read. Ace Greenberg himself called me up. We had been friends for seven years. We had appeared on a panel together in front of hundreds of people for the launch of my book, The Broken American Male. I had never complained to him even as he lost tens of thousands of my hard-earned retirement savings and had barely a minute to speak to me. He growled at me, "Shmuley, I am going to tell everyone in this bank that you're an extortionist. That's what you are. An extortionist. You better stop the pressure on the bank to restore your position. I am telling everyone here that you're an extortionist." I was in shock. So that's the way Bear Stearns works. When you discover a trader that's taken you to the cleaners and have the temerity to stand up for yourself, in their unrequited arrogance they will threaten to destroy libel you and destroy your good name unless you back off and go away.
I told Ace that I could not believe the way he had spoken to me and that his accusation was deeply libelous. It was bad enough that Zimmerman had gouged us with fees and could not even provide the service he promised. How could he start a campaign to lie about me and ruin my name simply because I refused to be ripped off? I told him he was being misled by Mr. Zimmerman who had worked behind his back for a year to get him replaced as our portfolio manager.
A few hours later Ace called me back and said, "I had Zimmerman in my office. He denied everything you said. He never contacted you. He never lied to you. You're an extortionist and everyone here will be told."
I quickly got off the phone, had my office compile all of Mr. Zimmerman's emails to me, dating back to June, 2008, and had them sent to Ace, Mr. Munowitz, and Mr. Longo. The emails clearly demonstrated that Zimmerman had lied through his teeth to Ace as he had to us. Ace, clearly unsettled, wrote back to me that he is now no longer dealing with the matter. There was no apology and there was no retraction of the unbelievable libel which he had spread against me with catastrophic damage to my reputation.
A short while later, Mr. Longo called. The bank knew they had a problem and it was damage control time. He informed me that the bank would indeed restore my position before Mr. Zimmerman had entered the picture. Based on their calculation they owed me just $3900. This was a pittance of the tens of thousands of dollars I had lost. Still, because I am not a fighter and simply wanted to put the episode behind me, I told them I would accept the settlement. I wanted to get away from Bear Stearns as quickly as possible and move to people I could trust.
Just when they were supposed to send the check and I was to move my accounts to a reputable bank I suddenly received a phone call from Mr. Longo. Bear Stearns would require me to sign a release. It was emailed to me, the most onerous release I had ever seen and a clear indication that Bear was terrified that the story of their greed, lies, and libel would leak. The release was not limited to Mr. Zimmerman's actions but encompassed all my years at Bear Stearns. Although I am a public figure who writes on values-based issues, it demanded that I essentially never tell a soul about what had happened with Bear. It gagged me from ever divulging Mr. Zimmerman or Ace's actions.
I wrote back saying the release was preposterous. I asked them to please amicably settle this, that I would sign the release for Mr. Zimmerman's actions but would not be gagged. I told him it was a gift that I was prepared to go away for the measly sum of $3900 given the tens of thousands I had lost and that they should not be so stupid as to provoke me further. They insisted on the gag. I refused.
So, I was given no choice but to sue Bear Stearns.
I believe fervently that if we who are not investors but are simple people whose only desire it is to put away money for ourselves and our children allow ourselves to be fleeced by Wall Street, things will never improve. Wall Street will remain as corrupt as it has always been, with devastating consequences to our economy, our morality, and our bottom line. If you have your own horror stories of how the sharks on Wall Street have treated you, do others a favor and warn them. If we don't confront Wall Street greed it will continue to destroy our economy and our nation.