An American law firm is investigating possible illegal conduct relating to the Bear Stearns employee stock ownership, profit sharing and deferred compensation plans after the investment bank announced its liquidity position has deteriorated.

Pittsburgh-based Stember Feinstein Doyle & Payne is looking into whether certain fiduciaries of the plans may have violated the Employee Retirement Income Security Act of 1974 (ERISA).

“The firm’s investigation relates to whether certain fiduciaries of the plans knew or should have known that Bear Stearns was concealing its large exposure to highly risky collateralized debt obligations, subprime mortgages, and other poor-quality securities, which has rendered Bear Stearns common stock and certain funds that it manages and offers as a risky investment for plan participants,” says a statement from the law firm.

Specifically, the firm is investigating whether Bear Stearns breached its fiduciary obligations under ERISA by continuing to offer the investment bank’s stock and mutual funds as an investment option for participant contributions when it was imprudent to do so and by failing to take action to sell Bear Stearns stock and mutual funds or otherwise protect the plans’ assets in light of the company’s risky business strategies and deteriorating financial conditions.

Shares of the investment bank dropped by as much as 53% Friday and are down nearly 80% from their 52-week high.

JPMorgan Chase—in conjunction with the Federal Reserve Bank of New York—has agreed to provide secured funding to Bear Stearns, as necessary, for an initial period of up to 28 days.

“Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity,” says Alan Schwartz, president and chief executive officer of Bear Stearns. “We have tried to confront and dispel these rumors and parse fact from fiction.”

“Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated,” he adds. “We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.”

Bear Stearns is also talking with JPMorgan Chase regarding other strategic alternatives, but can not make any assurances that any alternatives will be successfully completed.

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