Bear pays $27.3M to wronged insurer

Under orders from a federal judge, Bear Stearns has paid $27.3 million to the now-defunct National Heritage Life Insurance Co., which lost money invested with Bear on collateralized mortgage-backed obligations and collateralized debt obligations.
NOV 11, 2008
Under orders from a federal judge, Bear Stearns has paid $27.3 million to the now-defunct National Heritage Life Insurance Co., which lost money invested with Bear on collateralized mortgage-backed obligations and collateralized debt obligations. The decision ordering the payment, which was handed down by Judge James E. Glatt Jr. from the Ninth Judicial Circuit Court of Florida in Orange Country, found that The Bear Stearns Cos. Inc. of New York misrepresented the very nature of the investment strategy to NHL. Bear was purchased by New York’s JPMorgan Chase & Co. in March. In 1991, Matthew Denn, Delaware’s insurance commissioner, entered an Order of Confidential Supervision over NHL, a Wilmington, Del.-based company operating in Orlando, based on his belief that the company was in a “hazardous financial condition.” To comply with the state’s regulatory requirements and the order, NHL hired Bear Stearns, which provided the company with certain investments that were aimed at obtaining a “spread” above NHL’s annuity obligations to its policyholders, according to the lawsuit. Those investments included substantial investments in “synthetic CMO portfolios. The judge found that despite written and verbal representations by Bear that the CMO portfolios were hedged, balanced, safe and secure, the investments recommended and selected by Bear were “high-risk, extremely volatile and completely inappropriate” for NHL, according to a statement by NHL’s attorney, Tom Equels, the managing director of the Equels Law Firm in Miami. The court also found that Bear knew that the investments were unsafe from the outset and prevented NHL from determining the “extremely risky” nature of its investments until it had suffered significant financial losses, which led to the insurer’s demise. A call to JPMorgan Chase was not immediately returned.

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