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Archive for November, 2007

Bear Stearns Fund Seeks to Dissolve

A Bear Stearns investment fund hurt by the decline in the subprime mortgage market and facing creditors’ complaints about its management asked a Delaware judge to allow it to dissolve and liquidate its assets.

Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund LP was linked to a Cayman Islands-based fund shutting down because of the collapse in value of investments tied to subprime mortgages, the investment firm’s lawyers said Nov. 13 in a filing in Delaware Chancery Court in Wilmington. New York-based Bear Stearns is the fifth-largest U.S. securities firm by market value.

More than three months ago, Bear Stearns placed several hedge funds decimated by subprime mortgage losses in bankruptcy in the Cayman Islands. The company cited volatility in the subprime- lending market and subsequent margin calls for the July filings.

The world’s largest financial institutions have written down more than $21 billion of mortgages, securities and corporate loans whose value fell during the third quarter. A surge in defaults of poor-quality home loans has prompted more than 110 mortgage companies to close, seek bankruptcy protection or put themselves up for sale since the start of 2006.

Massachusetts Charges Bear Stearns With Improper Trading with Two Failed Hedge Funds

On November 14, 2007, Secretary Galvin charged Bear Stearns with engaging in improper trading activities at two collapsed hedge funds.

Filed on behalf of Massachusetts investors in the funds, the suit charges Bear Stearns Asset Management traded mortgage-backed securities, collateralized debt obligations and other securities from its own account with hedge funds it advised without notifying the client funds independent directors as required, Galvin’s office said in a press release.

The rules were designed to control conflicts of interest, but Bear Stearns Asset Management failed to train or oversee people who were supposed to obtain approvals from fund directors, Galvin claimed, violating state securities rules.

Losses at the two mortgage-related funds, the Bear Stearns High-Grade Structured Credit Strategies Fund and High-Grade Structured Enhanced Leverage Fund, cost investors $1.6 billion.

Bear Stearns hedge fund losses lead to arbitration claims

Arbitration claims were filed this week with Financial Industry Regulatory Authority (FINRA) by Aidikoff, Uhl & Bakhtiari, of Beverly Hills, California.

The Bear Stearns hedge fund at issue in the FINRA claims is the 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 theSouthern District of New York, wiping out nearly all investor capital.

According to Ryan Bakhtiari, of Aidikoff, Uhl & Bakhtiari, “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.”

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