Bear Stearns Cos. lost a $7-million jury verdict to investors who were misled by the brokerage's prospectus for bonds issued by now-bankrupt Weintraub Entertainment Group.
The award could rise to more than $100 million if other investors in the class-action suit prove they were similarly deceived, attorneys said.
A U.S. District Court jury in San Diego on Friday awarded $6 million to the state of Massachusetts' Pension Reserves Investment Trust, and $500,000 each to Alpha Group Consultants and an individual investor.
"Bear Stearns engaged in knowing fraud as part of the $83-million bond offering to finance Weintraub Entertainment Group," plaintiff's attorney Michael Aguirre said.
The former Weintraub Entertainment Group was headed by movie producer Jerry Weintraub.
Bear Stearns initially had the suit dismissed before trial. A federal appeals court based in San Francisco reversed that ruling, allowing the jury to consider one of several initial claims.
The eight-member jury deliberated more than six hours before finding that Bear Stearns knowingly misrepresented the timing of certain payments to Weintraub Entertainment, inducing the investors to buy the subordinated debentures.
Total damages could reach $120 million, Aguirre said.
Bear Stearns considers the verdict "factually and legally wrong" and "expects to have it reversed on post-verdict motions and/or on appeal," said Peter Benzian, a lawyer for the New York-based brokerage.
If that effort fails, other investors will have to prove they suffered damages, Benzian said.
"Bear Stearns will vigorously oppose any such claims on, among other grounds, that such class members did not rely on the alleged misrepresentation," he said.
Bear Stearns shares rose 25 cents to close at $51.25 on the New York Stock Exchange.