Tuesday, April 8, 2008

Bear Stearns, Deloitte Sued Over Hedge Fund

The problems for Bear Stearns seem to keep on coming. After its fire sale to JP Morgan, today's news is that the liquidators of two of its hedge funds that collapsed last year, have filed suit against the company and its auditor, Deloitte & Touche seeking to recover over $1 billion in losses.

The suit, filed in U.S. District Court in Manhattan, accuses Bear, the managers of the hedge fund, and Deloitte, of not living up to assurances that the funds were relatively safe and conservative investment vehicles.

According to the Reuters article, the plaintiffs allege that the funds were not designed to withstand even a "slight downtick" in the housing market and that Bear Stearns "conceived, marketed and managed hedge funds that they knew would be viable so long as - but only so long as - the U.S. housing market continued to rise," the suit said.

The suit charges that the company, the fund managers, and Deloitte violated their fiduciary and professional duties. The suit said Deloitte's preparation of the funds' audits was "at a minimum negligent."

An interesting series of allegations against Bear - do the plaintiffs really believe that they created a hedge fund that would fall apart if the housing market fell apart?
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