Bad News Bear: Funds Hit By Claim, File For Bankruptcy

Aug 2 2007 | 8:16am ET

Bear Stearns CEO James Cayne, who’s probably not sleeping well to begin with, must dread waking up each morning, as each new day seems to bring more bad news to his embattled firm.

On Monday, the firm halted redemptions in a third hedge fund that had been overwhelmed by investors who wanted out. Late Tuesday, Bear’s bêtes noire, its two collapsed credit hedge funds, struck again, declaring bankruptcy. And yesterday, it was hit by the first of what could be many claims against it.

A 73-year-old retired insurance salesman from Wisconsin filed an arbitration claim with the National Association of Securities Dealers against both Bear and Bear Stearns Asset Management, alleging that Bear misled investors about the High-Grade Structured Credit Strategies Fund’s sub-prime exposure. The investor reportedly lost $500,000.

Lawyer Jacob Zamansky, who along with Ross Intelisano—an attorney who represented a group of Bayou Management investors—filed the claim stating his firm has been contacted by a number of other Bear investors and will almost certainly file further claims.

“We expect to file claims in excess of $100 million in losses,” he told Reuters.

Zamansky explained that his client filed an arbitration claim, rather than suing Bear in court, because it “is quicker and cost efficient.”

Meanwhile, both the High-Grade Structured Credit Strategies Fund and its slightly more disastrous sister fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, have filed for Chapter 15 bankruptcy, seeking to prevent creditors from further asset seizures. The move was reportedly precipitated by the funds’ inability to meet a margin call.

In addition, the funds’ liquidators, Simon Lovell Clayton Whicker and Kristen Beighton of the Cayman Islands, have secured a restraining order preventing any more asset seizures. There will be a preliminary injunction hearing on Aug. 9 in U.S. Bankruptcy Court in New York.

In Depth

Related-Company Fees: Normal Industry Practice or Conflicted Compensation?

Nov 11 2015 | 4:23pm ET

Regulatory agencies as well as investors are increasingly exploring whether certain...


Ferrari Roars in Wall Street Debut

Oct 21 2015 | 4:28pm ET

Shares of supercar maker Ferrari jumped as much as 15 percent to a high of nearly...

Guest Contributor

Private Debt - What is the Opportunity?

Nov 11 2015 | 3:28pm ET

In this contributed article, Rob Allard, founding partner of Firebreak Capital...


Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…