SOURCE: Appelrouth Farah & Co.

Appelrouth Farah & Co.

February 26, 2009 15:31 ET

Bear Stearns Ordered to Pay $27.3 Million in Damages to Investors for Misrepresenting Its Investment Strategies

Assessment & Testimony From Appelrouth Farah & Co. Forensic Accountant Stewart Appelrouth Plays Critical Role in the Court's Decision on Damages

MIAMI, FL--(Marketwire - February 26, 2009) - After 17 years of litigation, Bear Stearns & Co., one of the largest global investment firms in the world, was ordered to pay $27,353,000 in damages to the state of Delaware, as receiver for National Heritage Life Insurance Company (NHL), a Delaware company with principal offices in Orlando, Florida. According to the recent decision by Ninth Judicial Circuit Court General Magistrate James E. Glatt, Jr., Bear Stearns misrepresented the nature of its investment strategy to NHL.

The 9th Judicial Circuit Court determined that Bear Stearns & Co. breached its contract and its duty of good faith and fair dealing by failing to accurately represent their investment strategy and projected returns to NHL. Forensic accountant Stewart Appelrouth, a partner with the accounting firm of Appelrouth Farah & Co., was hired by the plaintiff's attorney, Thomas Equels, to determine the total amount of damages and provide expert testimony on the monies lost in the investments. Throughout the trial, Mr. Appelrouth's forensic investigation, analysis and testimony helped determine how much the plaintiff's reliance on Bear Stearns cost them by analyzing the sophisticated financial investments. Ultimately, Mr. Appelrouth's expert analysis and testimony was vital in Judge Glatt's decision to sustain his calculation of the damages.

In early 1991, after reports that National Heritage Life Insurance Company was having internal financial problems, the Insurance Commissioner of Delaware issued an Order of Confidential Supervision for the troubled company. Under the Order of Confidential Supervision, NHL was required to have a financial advisor to counsel on its investments and as a result, entered into an agreement with Bear Stearns & Co., based on the recommendation of an NHL employee that had a personal relationship with someone at Bear Stearns. Court testimony later revealed that Bear Stearns knew of the company's financial situation and Order of Court Supervision and aggressively solicited NHL's business.

According to the lawsuit, Bear Stearns claimed that it presented an investment strategy of low risk investments to assist NHL's goal of exceeding its financial obligation to its policy holders. Those investments included, among others, collateralized mortgage obligations (CMO) and a Residential Funding Corporation (RFC) bond, which were underwritten and marketed solely by Bear Stearns, who also controlled all relevant information provided to NHL. Mr. Equels retained Mr. Appelrouth for his expert knowledge and continuous experience with CMO from the time of their inception in 1980. In addition to providing investments for purchase, Bear Stearns also provided extended analysis, projected return on investments and future potential earnings analysis using proprietary software. Court testimony also revealed that Bear Stearns consistently provided NHL with inaccurate, misleading and deceptive financial information that they knew NHL had no way of verifying.

Unbeknownst to NHL and contrary to their proposal, the investments recommended and selected by Bear Stearns were high-risk and extremely volatile. Ultimately, NHL's investments fell short of Bear Stearns projections and they were unable to recoup their original investments, resulting in a loss of millions of dollars. NHL's ultimate demise and insolvency was a result of Bear Stearn's flawed investment advice to purchase high risk, volatile securities.

All of the information provided to NHL on the investment's projected performance came directly from computer modeling done by Bear Steams' proprietary Financial Analytical Structured Transactions (FAST) group. NHL was completely dependent on Bear Stearns for the explanation of these analyses.

On April 15th, 2008 the Ninth Judicial Circuit Court determined that Bear Steams consistently provided analyses and financial information which was deceptive, misleading and inaccurate. The $27,353,000 award for the plaintiffs was settled during mediation in October 2008.

About Stewart Appelrouth

Stewart Appelrouth co-founded Appelrouth, Farah & Co., where he has developed a reputation as one of the most creative financial and accounting advisors in South Florida. Appelrouth's hands-on, direct approach to financial challenges has provided his clients with solutions to seemingly insurmountable problems. His accounting experience includes over fifteen years of providing specialized services such as litigation support, auditing, fraud investigation, and business valuation services as well as, business and tax consulting. Mr. Appelrouth received his Bachelor of Science degree from Florida State University, Master's degree from Florida International University and is a Certified Public Accountant, Certified in Financial Forensics, Certified Fraud Examiner, Certified Valuation Analyst, Certified Family Law Mediator and Diplomate of the American Board of Forensic Accounting.

About Appelrouth Farah & Co.

Appelrouth Farah & Co., founded in 1985 by Stewart Appelrouth and Carlos Farah, is a full service accounting firm specializing in auditing, taxation, litigation support, business valuation and fraud examination. The firm's partners and professionals have experience in many areas of accounting and tax that will help maximize opportunities and ease the risks of today's challenging economic environment. Appelrouth, Farah & Co. services the full spectrum of private and public sectors, business conditions, geographical locations and market conditions. For more information please visit www.appelrouth.com or call 1(877) 446-0999.

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