August 28, 2007 — Investors who put money into two Bear Stearns hedge funds that blew up because of bad bets on subprime mortgages still might get a chance to recover a bit of their investment.
A federal judge in Manhattan yesterday temporarily blocked investors from seizing the assets of the two funds, but said he is considering allowing U.S. lawsuits.
The Bear Stearns hedge funds had asked U.S. District Court Judge Burton Lifland to recognize the Cayman Islands as the main jurisdiction for the proceedings under Chapter 15 protection, which would bar U.S. lawsuits during the liquidation process.
The two funds were registered in the Cayman Islands, but operated mainly out of New York.
Judge Lifland expects to rule on the matter within 10 days.
Even if he decides in favor of U.S. investors and allows the suits, investors don’t have much hope of recouping much.
Liquidators unwinding the funds are estimating potential recoveries of only $25 million and $50 million for each – a fraction fo the funds’ roughly $1.5 billion worth before they imploded.
That makes Bear Stearns itself the better target for investor claims.
“The funds have little or no assets left, so investors would just be spinning their wheels by going after the funds themselves,” said Ryan Bakhtiari, whose securities litigation law firm is representing investors who lost money on the hedge funds’ collapse.
Bakhtiari said investors were misled about the level or risk.
“The fund was sold as having AAA- and AA- rated investments,” he said. “It’s stunning to think that that kind of credit quality could … lose 90 percent … of its value in just 60 days,” he said.
Bakhtiari said his firm is representing individual investors, hedge funds and institutions.
“Investors that we have spoken to are very upset,” he said. “They’ve lost signifiant sums of money.”
Bear Stearns spokeswoman Elizabeth Ventura said the firm intents “to vigorously defend” itsleft in court against any lawsuit.
“These funds catered to sophisticated investors who were made well aware of the risks involved,” she added.