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Truth Or Dare

Publication Date: 
July 21, 2008
Michael Maiello

Professor Michael Klausner is quoted in a Forbes article about the self-fulfilling nature of truth-telling in banking. His comments are about Cioffi and Tannin, the two Bear Stearns hedge fund managers who have been arrested and charged with talking up the prospects of two Bear funds:

"If their intent was not to deceive but to avert a value-destroying run on the fund, then a strong argument can be made that the securities laws have not been violated," says Michael Klausner a professor of business and law at Stanford University.


In commercial banking there are regulators who are charged with keeping panics from spreading among depositors. A bank that finds itself approaching insolvency is supposed to go to the regulators first, and the problems are meant to be dealt with quickly and quietly by the Federal Deposit Insurance Corp. Transparency isn't paramount; sometimes, says Klausner, it's considered a detriment. The goal is to protect the depositors (up to the insurance limits) without inducing them to storm the teller windows.