Barclays next up to sue Bear

Burned in the aftermath of Bear Stearns’ two collapsed hedge funds, Barclays has sued the firm and a pair of its fund managers.
DEC 20, 2007
Barclays PLC, burned in the aftermath of Bear Stearns’ two collapsed hedge funds, yesterday sued the firm and a pair of its fund managers in a U.S. District Court in New York. The London-based bank, a shareholder in the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd., alleges that Bear Stearns Asset Management, fund managers Ralph Cioffi and Matthew Tannin knew that the Enhanced Fund’s underlying assets were below their stated values in early 2007. Barclays also alleges that Mr. Cioffi, Mr. Tannin and BSAM hid the falling value instead of trying to fix the problem, violating their fiduciary duties. Bear itself was also named a defendant in the suit. Barclays loaned $400 million to BSAM, but later the funds ran into liquidity problems in late 2006, according to the suit. “What I was thinking was to build up 6 [months] of returns then send a letter to all the remaining investors and tell them we are closing the [High-Grade Fund] and ask everyone to convert to [the Enhanced Fund],” Mr. Cioffi wrote to Mr. Tannin in an e-mail cited in the suit. However, as cash began drying up in early 2007, Mr. Tannin and BSAM told Barclays that the Enhanced Fund was doing “great.” Aside from charging breach of fiduciary duties, fraud and negligent misrepresentation, Barclays is requesting damages, which will be determined at trial. Enhanced Leverage and its sister fund High-Grade Structured Credit Strategies imploded in July, burning up $1.6 billion in investor capital. The Securities and Exchange Commission, the state of Massachusetts and prosecutors in Brooklyn, N.Y. are now examining the collapse.

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