Legal action over Bear Sterns Hedge Funds
After Bear Sterns filed bankruptcy petitions for its 2 devastated hedge funds in the USA and the Cayman Islands in the beginning of August, court papers began to reveal the events that led to the funds’ demise.
The Bear Stearns High-Grade Structured Credit Strategies Master Fund and the Bear Stearns High-Grad Structured Credit Strategies Enhanced Leverage Master Fund filed in the United States under Chapter 15 of the bankruptcy code. They also filed in the Cayman Islands – the jurisdiction they were registered.
In the beginning of August, the Cayman Islands Grand Court appointed Simon L C Whicker and Kristen Beighton of KPMG as joint provisional liquidators. According to the lawyers of the court, most of the funds’ assets are in the United States and probably a local court will be needed in order to to oblige creditors to turn over assets held to the Cayman liquidators.
As it has recently emerged, most of the assets of the 2 shuttered funds had been re-possessed by secured creditors during the period before their bankruptcy. Also, Bear Sterns suspended redemptions in a 3rd fund, the USD 900 million Bear Stearns Asset-Backed Securities Fund, but, according to Bear Sterns, the fund had just a tiny exposure to the sub-prime mortgage market.
So, in the beginning of August, legal action against Bear Sterns was begun by some investors in the 2 bankrupt funds. An arbitration claim with the National Association of Securities Dealers was filed by law firms Zamansky & Associates and Rich & Intelisano to allege that Bear Stearns misled investors about its exposure to the funds.