Bear Stearns may set a precedent for the mandatory hand-holding and belly-rubbing of trading clients, if it’s forced to pay up to $180 million (9% of its 2006 earnings) for neglecting to keep a watchful eye on Manhattan Investment Fund Ltd. The hedge fund, founded in 1996, went bankrupt in 2000, in “one of the most egregious and costly frauds in the history of the securities markets,” according to the SEC. U.S. judge Burton Lifland believes Bear is to blame.
``Bear Stearns failed to act diligently in a timely manner,'' Lifland said in a Jan. 9 opinion, finding that the New York-based company, the fifth-largest U.S. securities firm, learned as early as December 1998 that fund manager Michael Berger may have been deceiving investors about returns. A hearing in the case is scheduled for today in Manhattan.
A ruling against Bear Stearsn is not likely to receive a warm welcome on Wall Street, as brokers would rather not “be seen as insurers for their clients.” On a related note, Jerry, George, Elaine and Cosmo are up for parole in 15 months for failing to abide by the Good Samaritan Act.
Bear Stearns May Have to Repay Failed Hedge Fund $180 Million [Bloomberg]