Hedge funds set to sue U.K. regulator

A group of the world's largest hedge funds are planning to sue the London-based Financial Services Authority for millions of pounds of losses allegedly resulting from the regulator's ban on short selling, according to a report in the Sunday Telegraph. The report cited several unnamed hedge fund industry representatives who said that the British financial regulator wrongly extended its powers and caused "widespread capital destruction." On Thursday, the FSA announced a ban on short selling of financial stocks. That move was followed on Friday with a similar action by the Securities and Exchange Commission. The Telegraph reported that that 35% of European hedge funds were organizing emergency measures to avoid closing funds as a ban on short-selling has hindered fund managers at a time when they need flexibility to survive. "It's too easy to blame hedge funds," said a fund manager quoted in the report, who asked not to be identified. "The real culprits are the banks which were cavalier in their lending and the investment banks which were irresponsible in the way they packaged the loans and pumped them round the world.” Shares of The Goldman Sachs Group Inc. and Morgan Stanley, both of New York, were battered by short-sellers before a temporary emergency action to prohibit short selling in 799 financial companies was put in place Friday.