Ethics Watch: Bear Stearns Fails To Disclose CEO’s Severe Illness

In an interview with Fortune that will be published shortly, James Cayne told a reporter that he was in the hospital for 10 days back in September, suffering from sepsis triggered by a severe prostate infection. This was in the fairly early stages of market worries that the company had overexposed itself to bad mortgages, concerns that proved to be right on when the company was forced into a $2-per share  Fed-orchestrated fire sale that was  later revised to $10 in an act of mercy.

In the wake of the firm’s collapse, there are essentially two schools of thought: one believes that Bear collapsed because of its own horrible investments, solvency, and credibility problems, while the other believes that the company was a victim of rumor-mongering and aggressive short selling.

If Bear was a victim of false rumors, it created that environment itself by destroying its credibility with failures to disclose important information and a general lack of candor. This latest news that the company declined to tell anyone that its CEO was in the hospital for 10 days as it attempted to navigate a crisis speaks volumes about Bear’s lack of candor and unwillingness to level with shareholders about what was really happening at their company.

There is currently no law in place that firms must publicly disclose health issues related to their top executives, but that’s really not the point: the fact that the CEO was in the hospital might have effected investors’ decision to purchase the stock and therefore the ethical thing would have bee to disclose it.

In the end, did Cayne’s stay in the hospital have any impact on the company’s collapse? Of course not. But the fact that they covered that up makes you wonder what else they were covering up.

Zac Bissonnette