Bear Stearns to Its Hedge Fund Investors: Walk the Plank

Today’s Wall Street Journal story on the continued unraveling of the Bear Stearns hedge funds include an easily overlooked item that deserves added scrutiny. When Wall Street executives outside of Bear Stearns pressured the firm to provide its two capsizing hedge funds with added liquidity, senior management initially balked. According to the Wall Street Journal, “Bear Stearns executives felt they shouldn’t feel obligated to lend money to a fund whose operations were separate from Bear Stearns’, and whose investors were knowledgeable about the risks.”

Forget for a second Bear Stearns’ apparent contempt for its clients, but one of the arguments we will be making on behalf of our clients who invested in these funds will be material misrepresentations of risks and investments: so investors were never truly “knowledgeable” in the first place.

Clearly rather than spend the money that usually goes into end-of-the-year bonuses, Bear Stearns preferred to throw investors overboard figuring these wealthy clients would land safely. But it doesn’t matter if you’re rich or poor, a sophisticated investor or not, you are entitled to honest information about your investments.

To view recent coverage of our case against Bear Stearns, please click here.