|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
Law Firms Bracing For Hedge Fund Suits, Credit pinch may trigger legal action.
Pamela A. MacLean
The National Law Journal. November 26, 2007
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EXCERPT: The hedge fund industry is on edge. Securities regulators in New York have 30 hedge funds in their sights, while California regulators are moving to require registration of the unregulated funds -- actions that may only be the beginning of a rocky 2008 for the secretive investment vehicles. With end-of-year withdrawals looming as wealthy clientele ponder pulling out more money as credit markets continue to be squeezed, much more litigation against hedge funds is predicted.' Anytime a hedge fund blows up, you are going to see class actions and a lot of cases are going to end up in [U.S. Securities and Exchange Commission (SEC)] receivership and bankruptcies,' said Ross Intelisano of Rich & Intelisano in New York, who represents a group of investors allegedly defrauded in the 2005 Bayou Group hedge fund case. 'We see this as a growing area of our practice. Absolutely, in 2008, this will continue as more hedge funds sink,' he said. Morrison & Forester announced earlier this year the creation of a hedge fund recovery team to address bankruptcy, restructuring and fund liquidation for the hedge fund failures it expects. Its area of concern focuses on funds betting on risky credit default swaps, which are bankruptcy insurance for creditors, and other distressed debt investments. Bears Stearns suit Massachusetts regulators filed suit against Bear Stearns Cos. on Nov. 14 in a civil suit alleging fraud and improper trading in two mortgage-related hedge funds that collapsed. In the Matter of Bear Stearns Asset Management, No. E2007-0064. Bear Stearns provided $1.6 billion in financing in August to bolster the troubled funds, but both still fell into bankruptcy. In October, a regional enforcement official with the SEC in New York disclosed 30 investigations in the Northeast alone of hedge fund trading for potential conflicts of interest and asset-value manipulation. Compare that to the SEC average of roughly 20 cases a year nationally against hedge funds during the past five years. SEC spokesman John Heine in Washington confirmed the New York number, but declined to discuss any initiatives in other regions of the country, nor would any of the dozen regional offices contacted individually. The number of hedge funds has mushroomed in recent years. There are as many as 9,000 hedge funds investing as much as $1.2 trillion, according to private estimates and the California Department of Corporations. That's up from a few hundred in the 1990s. |
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