Suspicion over the collapse of Bear Stearns is centring on a massive options trade, less than two weeks before the historic investment bank went under in March, by which a single investor made a profit of more than $270m (£141m) on a bet against the company's share price.
In a "whodunnit" that has gripped Wall Street for months, many traders and senior executives at Bear Stearns have become convinced the firm was brought down by a conspiracy of rivals and hedge funds, who spread malicious rumours and ultimately triggered a collapse in confidence among its trading partners.
These conspiracy theorists received new evidence yesterday, with news of an extraordinary bet placed in the derivatives market on 11 March, near the start of the week when rumours of Bear's financial problems snowballed. By 14 March, the Federal Reserve was having to extend emergency funding as Bear's customers deserted. On 16 March it was sold at a fraction of the previous share price to JPMorgan Chase.
The derivatives trade involved put options that gave purchasers the right to sell 5.7 million Bear Stearns shares for $30 each on 20 March, and 165,000 shares for $25 each also on 20 March, according to Bloomberg data. The options cost the anonymous investor $1.7m.
That was less than half the $62.97 price at which Bear Stearns shares were trading on 11 March, suggesting the investor was confident the stock was going to crash. Many traders said yesterday such a big, short-term bet would be highly unusual, even for a hedge fund. Others, though, pointed to the 158 per cent return to suggest it was a bet with a reasonable risk-reward ratio.
Bear Stearns executives first heard rumours on 10 March which were suggesting the company faced a liquidity crisis, and business television began reporting the company's denials that day.
The Securities and Exchange Commission has subpoenaed trading records and email archives at dozens of Wall Street banks and hedge funds to see if people with a financial interest in Bear's demise were spreading rumours they knew to be false.
At the shareholder meeting that agreed the firesale to JPMorgan, Jimmy Cayne, Bear's chairman, told shareholders he believed a "conspiracy" was behind its collapse and said he hoped the authorities would "nail the guys who did it".