Hedge Fund Lawsuits

New York, NY: The government has unsealed an indictment against two former Bear Stearns Cos. hedge fund managers. The managers were arrested June 19, 2008, after they were indicted by a federal grand jury.

The former Bear Stearns hedge fund managers face nine charges including conspiracy, wire fraud and security fraud. They are alleged to have misled investors about the declining value of two hedge funds, the High Grade Fund and the Enhanced Fund. The men were charged based on a personal email between the two, which allegedly shows knowledge that the funds were in trouble just prior to assuring investors that the funds were fine.

According to the indictment, the investors marketed the Enhanced Fund as generating greater profits than the High Grade Fund (in which clients previously invested their money) but that the Enhanced Fund had only "limited additional risk." In fact, the Bear Stearns managers and other advisors, told investors that they invested their own money in the funds, however one manager apparently never invested his own money and the other withdrew some of his investment without telling investors.

The managers are further alleged to have "misrepresented or omitted material facts in communications with investors and lenders about a variety of topics, including the financial prospects of the Funds, their opinions regarding the financial prospects of the Funds, their personal investments in the Funds, the Funds' investor redemption requests, the Funds' liquidity picture, and the Funds' exposure to the subprime market."

In other hedge fund news, Citigroup has offered investors a settlement of between 45 percent and 54 percent of their investments in certain hedge funds. The organization is alleged to have marketed certain hedge funds as being higher-yielding investments than a municipal bond but with very little additional risk. Brokers and fund managers allegedly told investors that even in a worst case scenario, the hedge fund would post losses of no more than five percent a year. In actuality, investors allege they lost a lot of money on Citigroup's hedge fund.

Hedge funds have been in the news a lot, lately. Earlier this year, UBS Fund Services brought charges against MF Global Inc., alleging that a hedge fund scandal defrauded clients out of over $200 million. Meanwhile, the US Securities and Exchange Commission (SEC) brought charges last year against Sandell Asset Management, alleging the firm made inappropriate short sales related to Hibernia Corporation. The SEC alleges the short sales were designed to benefit from the aftermath of Hurricane Katrina.

People who put their money in hedge funds and other investments rely on the advice of their financial advisors. They trust their advisors to give them sound advice regarding safe and risky investments. Unfortunately, some advisors are willing to betray their clients' trust and give them misleading information.

If you have been the victim of an unscrupulous financial advisor, who misled you regarding the stability of hedge fund investments, contact a lawyer to discuss your legal issues.