The Ghost of Bear Stearns Raised in $59 Million FINRA ARS Arbitration Against JP Morgan

November 8, 2011

It's not that this case presents any novel legal theories - it doesn't.

It's not even that this case is particularly interesting - frankly, it's not.

What I do like about this case, and the reason for my publishing it, is the sheer size of the damages requested and the fact that it involved the now departed carcass of Bear, Stearns & Co.

ARS Dispute

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2010 and thereafter twice amended, Claimant Alliance Semiconductor Corp. alleged that it sustained sizable damages arising from transactions/auctions in the Ambac Assurance auction rate securities ("ARS").

Specifically, Claimant Alliance Semiconductor alleged that Respondent JP Morgan in its role as a successor to Bear Stearns had made material misrepresentations or omissions concerning the liquidity risk of the Ambac ARS, particularly as to it convertibility. Moroever, Claimant alleged that Resopndent had negligently failed to supervise its brokers (amazingly, one of whom apparently was the son of the chief executive officer of Claimant!). Additionally, Claimant alleged that there were intentional and/or negligent recommendations of "grossly unsuitable investment." There are additional allegations spread over the the three iterations of the Complaint, but let's say that the gist of the dispute is pretty much set forth above

In the Matter of the FINRA Arbitration Between Alliance Semiconductor Corp., Claimant, vs. J.P. Morgan Securities Inc. (as successor in interest to Bear, Stearns & Co.), Respondent (FINRA Arbitration 10-01403, November 7, 2011).

SIDE BAR:  Incorporated in 1985, Alliance Semiconductor sold substantially all of the assets and liabilities of its operating business units prior to its 2008 fiscal year, effectively exiting the semiconductor industry,

Respondent generally denied the allegations, asserted various affirmative defenses, and sought the expungement of this arbitration from the Central Registration Depository records ("CRD") records of Respondent JP Morgan and non-party Daniel L. Keating.

SIDE BAR: Given that Melvin L. Keating was listed as Alliance's President and CEO, I'm guessing that non-party Daniel Keating was his son and also one of the allegedly unsupervised brokers of Respondent.

How Much???

As such, pretty much the classic he-said-she-said case. But for the damages sought by Claimant.

Ah yes, the damages. Sit down for this, okay?

Claimant sought $59,4250,000.00 plus interest and punitive damages; or, in the alternative, rescission of the disputed transactions plus interest and punitive damages. At the close of the hearing, Claimant clarified its compensatory damages as $56,000,000.00 plus interest and fees.  What's three billion bucks between friends anyway?


The FINRA Arbitration Panel denied Claimant's claims and the requested expungement.

Bill Singer's Comment

That's it folks. Go home. Nothing more to see here.  But - ya gotta admit - $59 Million is a breathtaking number.