April 02,2008

Grassley, Baucus seek details of executive compensation, SEC knowledge of Bear Stearns collapse

WASHINGTON — Senators Chuck Grassley and Max Baucus are asking company leaders about compensation and severance arrangements provided to top management personnel at Bear Stearns and JP Morgan Chase as part of the merger agreement reached last month.The senators are also asking the Securities and Exchange Commission questions aboutthe agency’s role in and reaction to the Bear Stearns collapse.

Various forms of compensation, including stock options, deferred compensationarrangements, and health care and other employee benefits are provided favorable treatmentunder the tax code. Baucus is Chairman and Grassley is Ranking Member of the Senate FinanceCommittee, which is responsible for tax legislation and oversight. The Finance Committee alsohas jurisdiction over U.S. debt and the Treasury-backed securities used to guarantee the BearStearns deal.

The text of the letters follows here.

April 2, 2008

Mr. Alan D. Schwartz
President and Chief Executive Officer
The Bear Stearns Companies Inc.
383 Madison Avenue
New York, NY 10179

Mr. James Dimon
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
270 Park Avenue
New York, NY 10017

Dear Messrs. Schwartz and Dimon:

We would like assistance from you in providing information to us and our staff regardingthe compensation and severance arrangements provided to top management personnel at BearStearns and JPMorgan Chase prior to and as a result of the merger agreement. Various forms ofcompensation, including stock options, deferred compensation arrangements, and health care andother employee benefits, are provided favorable treatment under the tax code. As Chairman andRanking Member of the Finance Committee, it is our responsibility to oversee not only thesecompensation programs and our federal tax and benefits laws related thereto, but more generallyany activities involving bonded debt of the United States.

In order to assist the Committee in understanding the compensation and severancearrangements, please provide complete copies of the following documents for all C-levelemployees at Bear Stearns and JPMorgan Chase as of March 1, 2008, as well as any materialamendments or contemplated amendments to those arrangements:

(a) Employment contracts;

(b) Deferred compensation arrangements;

(c) Severance plan details;

(d) Preferred stock and other equity based compensation arrangements; and

(e) Any other compensation arrangements, including expense reimbursements.

Thank you for your prompt cooperation on these important matters. We look forward tohearing from you by no later than April 9, 2008.


Max Baucus
United States Senator
Chairman of the Committee on Finance

Chuck Grassley
United States Senator
Ranking Member of the Committee on Finance

April 2, 2008

The Honorable Christopher Cox
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Dear Chairman Cox:

As Chair and Ranking Member of the Senate Finance Committee ("the Committee"), weasked our staff to review the details of the Bear Stearns-JPMorgan Chase transaction ("thetransaction"), as announced on Sunday, March 16, 2008. On March 14, prior to its suddencollapse, Bear Stearns stock was trading near $60 per share. By Monday, March 17, it was lessthan $5 per share.

In light of the recent Bear Stearns-JPMorgan Chase transaction and the federalgovernment's role in the resolution, it is appropriate for this Committee to request completedetails on the role of current regulatory oversight leading up to the transaction, with respect tothe conduct of business, the influence of outside parties, including the potential role of hedgefunds, and the compensation of executives. The potential impact of these factors on the financialsituation that resulted in the lending of treasury securities and the taxable compensation of theprincipals require that this Committee have a full understanding of these policies.

As the supervisor of broker-dealer holding companies under the Consolidated SupervisedEntities (CSEs) Program, the SEC is also responsible for setting capital and liquidity standardsfor companies integral to our financial system, such as Bear Stearns. Given what has occurred, itseems reasonable to ask whether the standards set by the SEC were adequate and whether thecompany was able to avoid compliance with those standards.

Accordingly, please provide the Committee with a detailed explanation of the SEC's rolein and reaction to the Bear Stearns collapse, including but not limited to answers to the followingquestions:

1. What steps is the SEC taking to re-assess the liquidity standards imposed on CSEs?

2. What enforcement mechanisms exist to ensure compliance with the standards and dothose mechanisms need to be strengthened to avoid similar problems with other CSEs?

3. To what extent was the collapse in investor confidence in Bear Stearns a reflection ofuncertainty created by investments and liabilities maintained off the balance sheets and thus nottransparent to the public markets?

4. According to press reports, JPMorgan Chase has already promised some senior BearStearns officials retention packages. When will the SEC receive disclosures regarding anyspecial executive compensation arrangements associated with the transaction and what is theSEC doing to ensure that those disclosures are complete and accurate?

5. Will the SEC be examining executive compensation provisions for Bear Stearnsupper-management in light of the company's collapse, including any special arrangements as partof the deal between Bear Stearns and JPMorgan Chase?

6. When was the SEC informed of the deal and what role, if any, did it play in itsnegotiation?

7. According to New York Stock Exchange (NYSE) Rule 312.03(c) (1), shareholderapproval is required for the issuance of stock with voting power 20% or greater than outstandingshares. Yet, JPMorgan purchased 39.5% of Bear Stearns through the issuance of new shareswithout shareholder approval. As part of its responsibility to provide oversight ofSelf-Regulatory Organizations (SROs), such as the NYSE, please describe the extent to whichthe SEC reviewed or approved this portion of the transaction in light of that rule.

8. To what extent is the SEC investigating any anomalous trading or potential manipulationsurrounding this extraordinary event? Is the SEC examining, for example, those with the 10 or15 largest short positions in Bear Stearns just before the collapse?

9. Has the SEC received any referrals or other notifications from SROs related to suspicioustrading or potential manipulation surrounding the transaction? If so, please describe in detail the, scope, and suspicious nature of the transactions or manipulative activities.

10. Has the SEC taken any special measures to ensure that suspicious trades or potentialmanipulation surrounding the transaction are identified and investigated as quickly as possible?If so, please explain.

11. Has the SEC sought to obtain from the parties timelines, documents, the names of thosewho represented the parties to the transaction, or other materials? If not, please indicatewhether, under what circumstances, and in what timeframe the SEC intends to do so.

12. Just days before the transaction was announced, you publicly expressed confidence in the"capital cushion" of Bear Stearns and other CSEs. On what did you base your conclusion andwhy did it prove to be apparently inaccurate in light of later events?

According to a December 10, 2007, Wall Street Journal article, as well as regulatoryfilings, the SEC had an investigation underway of Bear Stearns for improperly valuing mortgagesecurities. Given that this may have represented an opportunity for the SEC EnforcementDivision to uncover systemic market risks much earlier, we would like to learn more about thiscase and why it did not progress to an enforcement action, as well as any similar related cases.Accordingly, please provide the Committee:

1. Copies of any Wells Notices or draft Wells Notices related to Bear Stearns prepared bythe SEC since 2005;

2. a timeline of the decision-making process within the SEC that led to a decision not tobring an enforcement action against Bear Stearns as well as an explanation of the reasons fordeclining to bring an enforcement action; and

3. a description of any and all communications between Bear Stearns executives or theirrepresentatives and senior SEC officials, including but not limited to Commissioners, theDirector of Enforcement, Associate Directors of Enforcement, and Assistant Directors ofEnforcement, as well as records relating to those communications.

Thank you for your prompt cooperation on these important matters. We look forward tohearing from you by no later than April 16, 2008.

Max Baucus
United States Senator
Chairman of the Committee on Finance

Chuck Grassley
United States Senator
Ranking Member of the Committee on Finance

cc: David Kotz, Inspector General
Securities and Exchange Commission