Securities Law

Hedge Fund Investors to Sue Bear Stearns?

Bad news for investors in two struggling Bear Stearns Cos. hedge funds is good news for a number of securities lawyers.

Their phones are ringing with calls from potential plaintiffs seeking to recover losses, following news that the funds, whose debt portfolios focus on subprime mortgages, have been hit hard by recent troubles in the subprime lending industry, according to Reuters. Because hedge funds are a relatively new arena for institutional investors, legal standards are still being established. However, these are sophisticated investors, so it may be difficult for them to win unless they were misled about the nature of the hedge funds.

“If the disclosures were adequate, then it is a situation where the buyer has to beware,” says Scott Tross, a litigator at Herrick Feinstein. “It was all a question of how these funds were advertised to the people buying them.”

Ross Intelisano says his firm has been contacted by two potential plaintiffs against Bear Stearns, but has not yet been retained. What is said in hedge fund marketing materials and offering documents is critical to such litigation, he agrees. “Just because a hedge fund lost money, doesn’t mean that there’s a potential claim by an investor.”

Wall Street Journal (sub. req.) (How Wall Street Stoked The Mortgage Meltdown).

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