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July 27, 2007
HEDGE FUND DAILY
In an effort to thwart another fire sale by creditors of one of its two troubled hedge funds, Bear Stearns has seized the securities of the High-Grade Structured Credit Strategies Fund. The move, according to BS spokesman Russell Sherman, will help the firm “protect against any future-price declines,” as it proceeds with an “orderly liquidation” of the fund. Just last month Bear Stearns assumed $1.6 billion of the fund’s debt after creditors raise the assets of this fund’s sister fund. According to Bloomberg News, the firm is likely to lose the $34 million of its own money in the funds as well as some $43 million in unsecured loans to the funds, as well as an estimated $30 million in management fees it would have received if all had been well. Meanwhile, Bear Stearns faces possibly new legal trouble, as the New York law firm of KlaymanToskes says it has received “new information from an undisclosed source” that “may implicate” the firm for violations “far more serious than simple unsuitability and misrepresentation.” In a release, the firm stated that it is “looking into who sold the subprime paper to Bear Stearns Asset Management and exactly how Bear Stearns may have benefited from creating two hedge funds concentrated in subprime products.” In addition, KlaymanToskes says it is investigating “what role, if any, Bear Stearns’ research department may have played in the promotion of the Bear Funds.”