[ by Larry Goldfarb ]

Undeniably, the financial crisis was spurred by Lehman Brothers bankruptcy.  It caused a major money market fund to "break the buck," it made commercial paper investors almost panic stricken which nearly froze the global financial system.  Remember, GE was not able to float commercial paper for weeks after the bankruptcy filing.

The financial meltdown may have come to fruition six months earlier with the demise of Bear Stearns.  If JPMorgan did not jump in and purchase "Bear,"  the entire banking system may have collapsed.  The Federal Reserve and Treasury were desperate to find a buyer who could take on its toxic assets and help calm markets.

The current lawsuit which cites JPMorgan for the transgression of Bear Stearns, according to experts, could make firms cautious about engaging in the rescue of a troubled financial company in the future.  Ernest Patrikis, a partner at the law firm White & Case, said buyers in future deals of this type need to make greater efforts to evaluate the legal dangers and isolate any questionable business units.

"If I'm concerned about unknown risk at what I was buying, I wouldn't be merging it into an existing entity," said Mr. Patrikis, who also is a former general counsel of the Federal Reserve Bank of New York.  "I would keep it separate and hopefully build enough walls to make the separateness legally effective."

It is unclear how strong a legal defense JPMorgan will have, said John Coffee, director of Columbia University Law School's Center on Corporate Governance, who noted that JPMorgan acquired Bear Stearns through "an arranged marriage."

"Morally it's not JPMorgan's responsibility but there were losses and the public wants the historical record set right," Mr. Coffee said.  "They took the bitter with the sweet when they accepted a major package of federal financing to complete the deal."

The civil lawsuit against JPMorgan was brought under a powerful New York state law known as the Martin Act, which generally does not require proof of intent, a major stumbling block in most fraud cases.

The statute allows the New York attorney general's office to pursue both criminal and civil cases, although the 2006 and 2007 conduct in the JPMorgan complaint appears to fall outside the 2-year statute of limitations for misdemeanors and the 5-year one for felonies.  The civil statute of limitations is 6 years.

For further details, go to [Reuters, 10/2/12].