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Bear Stearns Forensic Accounting Case

1. Identify key dates concerning financial accounting and/or disclosure issues for Bear Stearns during the critical March 2008 time period before bailout by JP Morgan Chase.

* March 10, 2008
The Alt-A residential mortgage-backed securities issued by a Bear Stearns affiliate was downgraded. This increased the risks of mortgage-backed securities.

Two Bear Stearns hedge funds now bankrupted and were leveraged up to $60 of debt for each $1 of equity. This increased BS’ financial burden.

RaboBank Group informed Bear Stearns that it would not renew a $500 million loan coming due later that week and unlikely to renew a $2 billion loan scheduled to expire the following week. BS will seek short-term debt to meet current liability so it will have more current liabilities and decrease BS’s liquidity.

Bear Stearns’ shares dropped as much as 14% in the course of the day, finally closing at $62.30, and a decline of more than 11 percent. It decreased its value and might influence its goodwill.

The annual cost of a 5-year Bear Stearns’ CDS ballooned more than 37% to $626,000 per $10 million. This increased BS’s expense and decreased its net income.

* March 11, 2008
ING Groep NV was pulling about $500 million in financing.
Adage Capital Management pulled some of its money from Bear Stearns’ prime-brokerage division.
BS’ capital decreased and solvency. It might not meet its current liability needs.

* March 12, 2008
Bear Stearns’ balance sheet and capital was suspect and the value and liquidity of many of its assets had been dissipating for more than a year. Its assets decreased.

At least $3 billion of Bear Stearns’ credit facilities were not renewed. Bear Stearns’ substantial indebtedness and capital structure were highly problematical. These indicated that BS has high financial pressure and do not have

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