“Where there’s smoke, there’s fire,” is the way JP Morgan Chase CEO Jamie Dimon described the impact of rumors on the downfall of investment bank Bear Stearns.
Dimon appeared in a taped interview from
“I would say, ‘Where’s smoke, there’s fire,’” Dimon said. “I’ve heard it. I don’t have evidence of it. I think the Securities and Exchanges Commission should investigate it. I think that if someone knowingly starts a rumor or passes on a rumor, they should go to jail.”
Dimon’s reference included an article by Bryan Burrough in the August 2008 issue of Vanity Fair [3] dissected the collapse of Bear Stearns. Burrough interviewed the key players at Bear Stearns at the time of the collapse and claimed they had $18 billion in capital the week of the buyout. They also claimed the bank was the victim of rumor-mongering of three players – SAC Capital Management, Citadel Investment Group LLC and Goldman, Sachs &
“And, the SEC’s been very careful not to examine rumors – it’s hard to capture a rumor,” Dimon said. “You don’t really know. This is worse than insider trading. This is deliberate and malicious destruction of value and people’s lives. They shouldn’t go to jail for a short period of time.”
Dimon told Rose the SEC should track who made money off the collapse and conduct a thorough investigation.
“So, if I was the SEC, I’d find out who made the money and I would investigate, like they do when they come after us all the time, e-mails, phone records, you name it – and I’d find out.”
Dimon did clarify that he didn’t know the allegations in Burrough’s article to be true.
“Now, I don’t know if that’s true,” Dimon said. “I really don’t know, but I think there’s enough smoke around, I think there should be a full investigation of it.”
Burrough’s article also said a group of hedge-fund managers celebrated Bear’s collapse and planned a similar assault on Lehman Brothers (NYSE:LEH [5]), another beleaguered investment bank that has had its stock price deteriorate over the past year and a half.
“Bryan Burrough’s article referred to that – there was a party one night – that a bunch of people met and went out and celebrated Bears’ demise,” Dimon said. “And you know – I’d like to find out who was there.”
Andrew Sorkin, columnist for The New York Times concurred with Dimon. In his column published on July 8 [6], Sorkin noted the dangers of rumor mongering on Wall Street by pointing out how it caused panic surrounding Lehman Brothers’ stock.
[T]his time the talk was that Lehman was about to be sold to Barclays, the big British bank. It was eerily reminiscent of Bear Stearns’s fire sale to JPMorgan Chase in March,” Sorkin wrote. “And when it comes to Lehman, the shorts have bet right lately: the stock has lost almost 70 percent of its value this year. The rumor turned out to be wrong, as rumors often do. But this one even had an exact price: Lehman would be sold for $15 a share, traders buzzed all afternoon, in what would amount to a ‘take under’ — Wall Street parlance for when a company sells itself for less than its market value.”