New York City's comptroller, who helps oversee the city's pension funds, has said he will investigate whether the failure of Bear Stearns & Co was due to miscalculation or deception, which could trigger a lawsuit to recover losses.
The drop in Bear Stearns' share price has resulted in a loss for the city's public pension funds of about $10 million, City Comptroller William Thompson told Reuters in a phone interview.
Massachusetts on Monday had said it was reviewing whether to sue Bear Stearns to recover money it lost as a result of the plunge in the investment bank's stock.
Bear Stearns' market value fell after the bank on Sunday agreed to be bought by JPMorgan Chase (JPM.N) at a price of $2 a share. On Friday Bear Stearns' stock had closed at $30.85. The shares on Tuesday closed up 22.9 percent at $5.91, suggesting some were closing out short positions or believe the firm could fetch a higher price.
New York City's pension fund has a long history of suing companies it believes defrauded investors. The $110 billion fund Thompson helps run is currently the lead plaintiff in a class-action suit against top U.S. mortgage lender Countrywide Financial Corp (CFC.N).
Thompson, a possible mayoral contender, said he does not believe Bear Stearns should be immediately kicked off the city underwriting teams.
Bear Stearns' swift descent underscored the fragility of Wall Street companies whose profits have been badly side-swiped by subprime losses, financial analysts said.
Though New York City's tax revenues are dependent on Wall Street's performance, Thompson said the real estate market remains solid and tourism is vibrant, thanks to the weak dollar.