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Home > Cases > Bear Stearns Hedge Funds > Bear Stearns Funds Collapse with More Investor Claims

Bear Stearns Funds Collapse with More Investor Claims

According to a December 6, 2007, article in the Mercado Investment News, in July of 2007, Bear Stearns “burned up $1.6 billion of money that was invested in two of its hedge funds: High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Fund.” The hedge funds in question were invested in risky mortgage-backed securities containing subprime debt. Bear Stearns stopped redemptions and the funds subsequently collapsed, with investor claims involving the funds filed this past summer. Now, Bear Stearns is facing a second round of legal troubles.

Eleven investors with combined losses of $62 million in the funds filed securities arbitrations claims against Bear Stearns with the Financial Industry Regulatory Authority (FINRA) on December 5, 2007. According to December 6, 2007, articles in the New York Times, Reuters, the Daily News (White Plains, NY) and the Mercado Investment News, attorneys for the investors allege Bear Stearns continued selling the funds when the subprime mortgage crisis was in full force.

As reported by Reuters News Service, as one of the most knowledgeable and experienced underwriters of mortgage-backed securities, Bear Stearns “knew or should have known that the market for these securities had become extremely unstable.”

Steve Caruso, a New York-based attorney at Maddox Hargett and Caruso P.C., echoed those sentiments, adding: “Officials at Bear Stearns engaged in a concerted effort to conceal the true state of affairs at both of these hedge funds for an extended period of time before they imploded.”

The claims against Bear Stearns also contend the company did not disclose “related-party” transactions between its hedge funds and other Bear Stearns divisions, as well as the risks of the illiquid securities held by the funds. Three weeks earlier, Bear Stearns was charged by Massachusetts regulators with engaging in related-party transactions without obtaining approvals from independent directors.

A Cayman Islands fund-of-hedge funds manager who lost approximately $1 million in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Fund is one of the claimants in the case against Bear Stearns. According to news reports, the claimant invested in March 2007, when the subprime mortgage market was showing signs of trouble. Several months later, rumors of steep declines in subprime-laden mortgage-backed securities began. On June 22, Bear Stearns confirmed that margin calls were draining liquidity from the two hedge funds. One month later, Bear Stearns filed bankruptcy for the funds.

In the summer of 2007, our group, who individually and collectively have extensive experience in representing investors against Wall Street, formed an affiliation. Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses. Contact us.


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