Shareholder Sues Bear Stearns Over CDOs

The lawsuit, filed in federal court in Manhattan late Monday, alleges the company, at the direction of its top management and directors, "recklessly" spent billions of dollars on the purchase of subprime loans, failed to take appropriate reserves for the large amount of CDOs in its portfolio and "actively concealed" its failure to write down impaired securities containing subprime debt.

"Due to increasing delinquency among subprime mortgage borrowers and the impending subprime mortgage crisis, these actions were reckless," the lawsuit says.

The complaint, filed by Maryland resident and Bear Stearns shareholder Samuel T. Cohen, seeks damage for breaches of fiduciary duty and mismanagement by Bear Stearns' top executives and directors. It also seeks a directive that the company reform and improve its corporate governance.

In a derivative lawsuit, shareholders file on behalf of the company and damages assessed are paid to the corporate entity, as opposed to direct payments to shareholders.

Last week, Bear Stearns warned investors it will take a $1.2 billion write-down in its fourth quarter related to mortgage securities.

"This lawsuit is entirely without merit and we will defend ourselves vigorously," a Bear Stearns spokeswoman said Tuesday.