10/03/2012 04:44 pm ET Updated Dec 03, 2012

Schneiderman's JPMorgan Lawsuit Lets Every Single Banker Off The Hook

Eric Schneiderman's financial crisis lawsuit against Bear Stearns and JPMorgan Chase has one thing in common with the start of the zombie movie 28 Days Later: They're both devoid of human life.

In the New York Attorney General's suit, no human is at risk of even being mildly embarrassed, much less going to jail or coughing up any cash, for what happened to Bear Stearns. Instead, the shareholders of JPMorgan Chase, which bought Bear Stearns at a government-sponsored fire sale in March 2008, will end up donating whatever pound of flesh Schneiderman manages to carve out of what's left of the failed bank.

The lack of any named individuals undercuts Schneiderman's claim that the suit is a major step toward holding Wall Street accountable for the mortgage-bond monkey business that led to the financial crisis. It sends an awful message to Wall Street: Break whatever you want, your shareholders (and the taxpayers) will pick up the tab.

Schneiderman has accused Bear Stearns of costing investors billions of dollars by selling them mortgage bonds stuffed with subprime junk. His lawsuit, for better or worse, includes many of the same allegations made last year in a private lawsuit by mortgage-insurance company Ambac Assurance Corp.

But there's a notable difference between his suit and Ambac's: Ambac last year attempted to name several human beings as defendants in its lawsuit, while Schneiderman names only the firms involved. Ambac's effort to add individuals to its suit was denied by a judge, but at least it tried.

Former Bear Stearns CEO James E. "Jimmy" Cayne tops the list of people Ambac tried to add to its suit, but is not mentioned in Schneiderman's. He was once named one of the worst CEOs in American history, leisurely playing bridge while his company went under.

But Cayne was enough on the ball to take home $388.25 million in cash and stock sales from Bear Stearns between 2000 and 2008, according to a 2009 study, entitled "The Wages of Failure," by Harvard Law professor Lucian Bebchuk.

During that period, when the investment bank was taking increasingly bigger risks with mortgage-backed securities, Cayne and the other top four executives at Bear Stearns pocketed nearly $1.5 billion in cash bonuses and stock sales.

The other officers listed in the study include:

  • Alan "Ace" Greenberg, former CEO and chairman of the board, who was chairman of the bank's executive committee from 2001 to 2008;
  • Samuel Molinaro, who was chief financial officer from 1996 to 2008 and chief operating officer from August 2007 to 2008;
  • Alan Schwartz, who was co-COO from June 2001 to August 2007 and then CEO from January 2008 until the merger with JPMorgan; and
  • Warren Spector, co-COO from June 2001 to August 2007.

None of these men are charged in the New York AG's case, and none have been accused of any crime. Nor have they been asked to give up any of the cash they took home before the firm collapsed. But all of them -- including Cayne, but excepting Molinaro -- were named individually as potential defendants in the Ambac case.

Ambac also tried to sue several other former Bear Stearns employees, including Thomas Marano, who was head of Bear Stearns' mortgage-backed securities department, and who later ended up running Ally Financial's mortgage operations. Ally was one of the handful of big mortgage servicers that paid a combined $25 billion to settle charges of botching foreclosures.

Jeffrey Mayer, co-head of fixed income at Bear Stearns, was also named as a potential Ambac lawsuit target. He reportedly turned down a $27 million offer to join JPMorgan after it bought Bear Stearns and instead became Deutsche Bank's head of global markets for North America.

All of the Bear Stearns alumni targeted by Ambac, in fact, went on to successful and lucrative next acts, according to a long Bloomberg profile last year. We don't know if any of these people did anything wrong, but it is strange that nobody is even asking.

Former lame-duck CEO Schwartz, at least, has expressed some regret about what happened:

"Those of us who were responsible for the firm were supposed to keep it out of trouble, and we didn't," he told CNBC earlier this year.