The company's top employees sold stocks worth over $20 million in December 2007. In fact, before resigning a couple of days back, Bear Stearns Chief Executive James Cayne sold $15.4 million of stock in December 2007. Cayne exercised and sold 172,621 shares of stock vested under a capital accumulation plan according to a filing with the SEC. However, Cayne still owns 5.6 million shares, or about 5% of the company.

In addition, In a Form 4 filed with the SEC, Bear Stearn�s President, Alan Schwartz reported he exercised options December 21, 2007 at no cost as part of a compensation plan and sold 67,900 shares the same day for $89.01 apiece. Further, An Executive Vice President exercised options for 102,408 shares of common stock according to a SEC filing. The bank�s Treasurer exercised options for and sold 25,927 shares of common stock in the same month.

Furthermore, On 08 January 2008, Moody's Investors Service downgraded the ratings of 46 tranches issued by Bear Stearns in 2006 and placed under review for possible downgrade the ratings of 11 tranches from eight Alt-A deals issued by Bear Stearns in 2007. The ratings of 24 tranches were downgraded to junk status, while 13 others had their ratings lowered but remained above junk status. In addition, the nine tranches already considered as junk status were cut further. Moody's said it took its action based on higher-than-anticipated rates of delinquency, foreclosure and banks owning real estate relative to credit-enhancement levels. We are trying to get some more information on the exact tranches which could impact the company�s estimated earnings in Q108 and FY2008. This is directly related to the work that we did with Ambac and MBIA (see list of links at end of article), for Ambac insures some of these tranches and we find the leverage and exposure for Ambac to be a disaster waiting to happen. There is also a direct connection to the model risk (of which Bear Stearns has singificant amounts) and counterparty credit risk that was loosely described in the Banks, Brokers and Bullsh|+series (Banks, Brokers, & Bullsh1+ part 1, Banks, Brokers, & Bullsh1+ part 2).

The company in its previous quarter�s earnings call also mentioned that it has considerable investment in the troubled bond insurer ACA Capital Holdings. ACA Capital�s bond insurance unit has been taken over by the Maryland insurance administration owing to the troubles faced by the bond insurer. The company was recently downgraded to junk territory by S&P, resulting in a cash shortage for the company. ACA recorded a $1.04 billion loss in third quarter owing to recent turmoil in the credit market. A substantial exposure to collateralized credit obligations with a significant amount of asset-backed or mortgage-related debt obligations contributed to the company's third quarter loss. The relationship between the types of assets Bear Stearns holds in its inventory, the current default rates, the litigous liability exposure, the precarious situation of the mononlines (actually, the multi-lines, since the only ones that are in trouble are the ones that strayed from their knitting) and where my research says the underlying must move price wise to achieve equilibrium, just may cause Bear Stearns to enter into a spiral where no amount of PRUDENT capital may be able to rescue it. For more on my findings of how the flaws of this monoline turned mult-line business model will reverbrate throughout Wall Street and Main Street, start with A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, then follow the bullet list down at the end of this article.

Despite these negative developments, Bear Stearns has managed to find investors. British financier Joseph Lewis owns 9.6% of Bear Stearns. He has acquired nearly 2 million more shares. In September 2007, Mr. Lewis had become the single-biggest investor in Bear Stearns, acquiring shares soon after two Bear hedge funds collapsed because of bad bets on securities backed by mortgages. He spent some $860 million to buy 7% of the company when the stock was trading at more than $100 a share. However, with the stock's fall, Mr. Lewis has a paper loss of well into, if not over the $100 to $200 million range. The latest SEC filing said Mr. Lewis has spent about $1.19 billion to buy Bear shares, spending an average $107.31 each. Also, in October 2007, Bear Stearns and Beijing investment bank CITIC Securities Co. agreed to invest about $1 billion each for minority stakes in one another. The companies agreed that CITIC's resultant ownership in Bear Stearns can be expanded to as much as 9.9%, and Bear's combination of convertible-securities holdings and five-year options in CITIC could, over time, amount to about 7% of the Chinese investment bank. These investors, obviously have an outlook on the bank that is contrary to mine, and would obviously be on the opposing side of any trades that took place.