Baffled Execs Say Rumor Killed Stearns

Bear Stearns' collapse and shotgun marriage to JP Morgan were sparked by little more than a rumor, Vanity Fair reports. True, the investment bank had stumbled—a $1.6 billion bailout of troubled funds hurt its image—but whispers of liquidity problems were false: Bear had $18 billion in cash reserves. Now former executives and the SEC want to know who killed the company.

Bear execs say that two hedge funds, and competitor Goldman Sachs, started the rumor to reap a profit—a claim the accused deny. But if Bear's demise was engineered, the details may never emerge. "Even with subpoena power, I'm not sure the SEC will get to the bottom of this, because the standard of proof is just too difficult," said one investment firm chairman. "But I hope they do." (More Bear Stearns stories.)