Alternative investments market round-up: Must prime brokers police hedge funds?
Should prime brokers be supervising their hedge fund clients? Yes appears to be the message sent out by New York bankruptcy court judge Burton Lifland.
He has ruled that Bear Stearns should pay $125 million to collapsed hedge fund Manhattan Investment Fund. The fund, for which Bear Stearns was a clearing broker, went bankrupt in 2000 after four years in operation. The manager, Michael Berger, reportedly lost $400 million of clients’ money but covered it up for three years. Court statements say that Bear Stearns reported concerns about the fund to the SEC but did so only a year after doubts were first raised internally. Judge Lifland said Bear Stearns "failed to act diligent in a timely manner" and should return $125 million in margin payments that the fund had made. The case has raised concerns on Wall Street that brokers must now be responsible for their clients’ activities.