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Law Firms Band Together In Arbitration

Total Securitization

A consortium of law firms has formed to represent investors who have lost money from their investment in the collapsed Bear Stearns hedge funds. Aidikoff Uhl & Bakhtiari, Maddox Hargett & Caruso and Page Perry are representing eight investors in different parts of the arbitration process with claims totaling $60 million. “We figured it was better [to band] together because there’s a lot of work to be done,” said Steve Caruso, partner.

The firms are targeting Bear Stearns Securities rather from the funds themselves to have a better chance of recovering losses. Less than $50 million was hoped to be recovered from the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund and only $25 million from the Bear Stearns High-Grade Structured Credit Strategies Master Fund (TS, 8/27/07). A recent decision by Judge Burton Lifland to strip the funds of the Chapter 15 bankruptcy protection they had been seeking has made it easier for creditors to recoup losses in arbitration, Caruso said.

Some of the issues underlying the claims are the disclosure of the problems with both hedge funds and the timing of disclosure. “Problems with the two hedge funds weren’t disclosed until late April to early May. There was evidence they knew as early as February that there were problems,” Caruso said. Two of their clients invested in the funds after February, he said. The firms are also investigating the accuracy of private placement memorandums and the nature and extent of investments put into the hedge funds.

The arbitration process may take a year and a half. Bear Stearns officials did not immediately return phone calls.