JPMorgan is facing legal action to stop its $1.4 billion (£701 million) takeover of Bear Stearns, the stricken Wall Street bank, after two pension funds argued that a new bid, revealed this week, left shareholders vulnerable and powerless.

Two Michigan-based pension funds have applied for an emergency injunction to stop Bear Stearns issuing 95 million new voting shares to JPMorgan, which would give it control of 39.5 per cent of the struggling US lender.

Under state law in Delaware, where the companies are incorporated, a company can sell up to 40 per cent without shareholder approval.

The pension funds, the Wayne County Employees’ Retirement System and the Police and Fire Retirement System of the City of Detroit, claim that the share sale is designed to weaken the position of those who opposed to the takeover.

“The stock sale is designed primarily, if not solely, to eviscerate the voting franchise of the current Bear Stearns stockholders,” the pension funds said in their court filing.

On Monday, JPMorgan raised its original $2-a-share offer for Bear Stearns to $10 a share after investors, including the British billionaire Joe Lewis, threatened to derail the bid on the ground that the price was too low.

However, some investors are still opposed to the $10-a-share offer, which is far below Bear Stearns $30 share price before the emergence of its liqudity problems.

Because many shareholders would vote against the “blatantly unfair” $10-a-share offer, the funds said that JPMorgan and Bear Stearns had “devised an improper plan to buy the necessary votes.”

The Detroit pension fund has also accused Bear Stearns's management of breaching its duty to shareholders by agreeing a quick deal with JPMorgan rather than initiating a competitive and open auction.

Bear Stearns and JPMorgan declined to comment.

Senior Bear Stearns executives have also come under fire from a class-action investor lawsuit filed in New York last week accusing management of deliberately concealing the investment bank’s true financial state in the run-up to its collapse.

In December, Barclays, the UK bank, sued Bear Stearns for allegedly providing misleading information about the performance of two sub-prime hedge funds that collapsed in June, wiping out $1.6 billion of investors' funds.

Separately, it emerged today that the Senate Banking Committee plans to hold a hearing into the deal at which it will invite representatives from JPMorgan, Bear Stearns, the Fed and the Treasury to testify.

The committee does not have any disciplinary powers, but it is a key driver of banking law and could propose new legislation based on the findings of its probe into the circumstances surrounding Bear’s sale.

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