Thursday, February 15, 2007

Bloomberg: Bear Stearns Told to Repay Hedge Fund $125.1 Million

Well, actually the money is for the defrauded clients of the hedge fund. Bear Stearns was the prime broker for the fund. It's a sad, sad story. The fund manager, Michael Berger, lost money on short sales, fraudulently issued client statements for an extended period, and fled the country and is still a fugitive. Bear Stearns "learned as early as December 1998 that [he] may have been deceiving investors about returns." Manhattan Investment collapsed in 2000.

A few quotes:

"[Judge] Lifland concluded last month that Bear Stearns ... was trying to cover its own potential losses and didn't investigate thoroughly after learning of possible fraud at Manhattan Investment, court filings show."

``This is going to send shock waves through many prime brokers, because they've been very careful to limit their responsibility for their customers' actions,'' Michael Missal, a former SEC lawyer and head of the regulatory practice at Kirkpatrick & Lockhart Preston Gates Ellis LLP in Washington, said before today's hearing. ``They do not want to be seen as insurers for their clients.''

"Manhattan Investment, founded in 1996, collapsed into bankruptcy four years later in `one of the most egregious and costly frauds in the history of the securities markets,' the SEC wrote...."


Bloomberg.com: Worldwide

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