Lawyers representing investors of one of the two Bear Stearns hedge funds that collapsed over the summer have filed claims with a regulatory body alleging that Bear Stearns failed to disclose conflicts of interest or how risky its trades were, and that it covered up “the true state of affairs” at both failed hedge funds before they imploded.
The claims, which were filed today with the Financial Industry Regulatory Authority, specifically relate to Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage (Overseas) Fund.
Three weeks ago, Massachusetts Secretary of State William Galvin charged Bear Stearns with improper trading in the failed hedge fund as well as the Bear Stearns High-Grade Structured Credit Strategies hedge fund. In late July, both funds filed for bankruptcy protection in the Southern District of New York, wiping out nearly all investor capital.
"Bear Stearns did not properly disclose related party transactions, the true nature of the risk of the illiquid securities in the investment portfolio and failed to protect the interests of their clients,” said Steven Caruso of Maddox Hargett & Caruso's office in New York. “Our investigation indicates that 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."
Ryan Bakhtiari, of Aidikoff, Uhl & Bakhtiari, added that "Given Bear Stearns' dominance in the mortgage-backed securities underwriting market, they knew or should have known how much subprime exposure both of these hedge funds faced. We're finding, in our investigation of these funds, that many investors in these funds simply were unaware of what was being held in their portfolios because it was not adequately disclosed."
The legal team pursuing the arbitration claims includes lawyers from Maddox, Hargett & Caruso, Aidikoff, Uhl & Bakhtiari, Page Perry, and David P. Meyer & Associates Co.
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States. It was created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange.
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