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The Price of Bad Advice

In August, Bear, Stearns & Co. paid $30 million to settle a lawsuit that claimed the securities firm gave bad advice.

1Oct

In August, Bear, Stearns & Co. paid $30 million to settle a lawsuit that claimed the securities firm gave bad advice to a software company involved in a merger. The case, involving the now-defunct Daisy Systems Corp., has put investment banks more carefully on guard when facilitating M&As.


Bear, Stearns settled as the case was headed to appellate court, but the real blow was struck in 1998 after a federal judge in California found against it, reports Stuart Buchalter, co-chair of the business practice group of Los Angeles­based law firm Buchalter, Nemer, Fields & Younger.


"Since the judge's decision was rendered," says Buchalter, "the investment banking houses substantially changed the form of their engagement letter to make it very clear that they were not being retained as an agent or a fiduciary of the client company."

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