Major Bear Stearns investor files fraud lawsuit

* Plaintiff was one of Bear's "most visible" investors

* Owned 5.9 percent stake

* Alleges fraud

NEW YORK, Sept 24 - One of Bear Stearns Cos' largest former investors has sued JPMorgan Chase & Co, two former top Bear executives and an auditor to recover for losses from a "valuation fraud" that he said led to Bear's collapse and takeover by JPMorgan at a fire-sale price.

The 62-page lawsuit was filed in Manhattan federal court on Thursday by Bruce Sherman, who said he was for several years "arguably Bear's most visible institutional investor" as the chief executive of Private Capital Management LP. He said he once controlled 5.9 percent of Bear shares.

Billionaire investor Joseph Lewis had amassed a larger stake in Bear by the time of the company's collapse.

Sherman accused Bear, its former chief executive James Cayne and former co-president Warren Spector, and its former auditor Deloitte & Touche LLP of overstating the value of its mortgage, asset-backed and derivative securities, the adequacy of its liquidity and capital, and the quality of management.

He said Cayne and Spector in particular "repeatedly and directly assured" him that Bear's valuation methods were accurate when they knew otherwise.

Sherman said he sold his stake for less than $6 per share, more than 95 percent below their peak, around March 19, 2008. Three days earlier, JPMorgan had agreed to buy Bear for $2 per share, with the backing of the U.S. Federal Reserve. JPMorgan later increased the purchase price to $10 per share.

JPMorgan spokesman Joe Evangelisti declined to comment. The other defendants were not immediately available for comment.

Private Capital is based in Naples, Florida.

The case is Sherman v. Bear Stearns Cos, U.S. District Court, Southern District of New York (Manhattan), No. 09-8161.