Rot at the Top at Bear Stearns

johnnymk · 08-09-2007, 05:26 AM

from Money News:

We noted with considerable interest and dismay a Bloomberg item, “Bear Stearns Caymans Filing May Hurt Bankrupt Funds’ Creditors.”

According to the item, “Bear Stearns Cos.’ decision to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York may limit creditors’ and investors' ability to get their money back.”

The item goes on, “While most of their assets are in New York, the funds filed for bankruptcy protection July 31 in a court in the Caymans, where they are incorporated.”

Talk about protecting the clients’ interests as a richly rewarded “custodian”!

It reminds us of the current TV advertisement in which the customers of a bank are robbed by their bank manager who shouts, “Get down on the floor!”

Hedge fund owners are very highly paid. We have no objection to that.

But, when a hedge fund goes offshore to evade the legal, American protections offered to its clients, we are shocked. We feel that such conduct is immoral, even for corporate lawyers.

However, Bear Stearns only went offshore for part of the deal.

As the Bloomberg article reported, “The bank [Bear Stearns] also used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and protect their U.S. assets during the Caymans proceedings.”

So, it appears that, in order to shield themselves from their clients (for whom they had lost 100s of millions of dollars) Bear Stearns did not merely go offshore, but cherry-picked between U.S. domestic and offshore legal jurisdictions to work against the interests of their clients.

Talk about integrity, morality and the American Way!

Of course, the rot, as it so often does, started at the top.

zippyjuan · 08-09-2007, 11:32 AM

I guess they took the line from the movie "Wall Street" where Michael Douglas says "Greed is good." Some would support this move saying that the company has the right to try to make as much money as possible as do individuals. Free markets- survival of the fittest. They haven't broken any laws (that we are aware of so far). Give me mine- don't care about the other guy. I disagree on ethical terms.

Quote:

The point is, ladies and gentleman, that greed -- for lack of a better word -- is good.

Greed is right.

Greed works.

Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.

Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind.

Maarchk · 08-09-2007, 01:02 PM

I think i read some hedge fund managers make a billion dollars a year... thats insane...
So wait, how do they have assets if they are bankrupt? And how do they just sell the assets and keep it for themselves while the people who invested to create the fund get nothing... Wow... just wow. I know a stock can go to 0 and you lose.. But a hedge fund is a bunch of people giving someone money to buy and sell stocks. If their is any assets, should they not belong to the people?

very sad.

Daedalus · 08-09-2007, 04:05 PM

It's not just stocks. The Bear funds went bankrupt because they were highly leveraged in debt instruments. A lot of people aren't paying their mortgages. And unlike mutual funds, hedge funds can go short. Congress has so far opened them up to "qualified investors" only. People who are worth (I think) $1M or more. That number may have gone up.
Hedge funds, like venture funds, have a 2 and 20 rule. The managing partners take 2% of principal off the top, and 20% of whatever profits they make.

Chgoman · 08-09-2007, 08:57 PM

Sometimes the lawsuits bother me though. People who are considered 'qualified investors' have to have a minimum net worth of at least 1 million along with income limits and certain levels of investment experience. They choose to invest in something such as a hedge fund which can have great returns, but do so at significantly more risk. Investers get all sorts of disclosures and warnings to this effect and have to sign off on everything. Does is suck that one of the recent bankrupt funds lost 80% of thier investors money, sure, but the investor chose to make the investment into a non-diversified fund acknowledging the risk when they made the purchase.

With a lot of these funds that follow the latest fad or go for risky investments, they'll be up 30-50% a year for a few years, but people don't sell, they hold on until the fad crashes and then they loose a bunch of money and then bring lawsuits.

08-09-2007, 05:26 AM	#1
johnnymk Chief of Naval Operations Join Date: May 2000 Location: LEVITTOWN< PA> USA Posts: 13,621	Rot at the Top at Bear Stearns from Money News: We noted with considerable interest and dismay a Bloomberg item, “Bear Stearns Caymans Filing May Hurt Bankrupt Funds’ Creditors.” According to the item, “Bear Stearns Cos.’ decision to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York may limit creditors’ and investors' ability to get their money back.” The item goes on, “While most of their assets are in New York, the funds filed for bankruptcy protection July 31 in a court in the Caymans, where they are incorporated.” Talk about protecting the clients’ interests as a richly rewarded “custodian”! It reminds us of the current TV advertisement in which the customers of a bank are robbed by their bank manager who shouts, “Get down on the floor!” Hedge fund owners are very highly paid. We have no objection to that. But, when a hedge fund goes offshore to evade the legal, American protections offered to its clients, we are shocked. We feel that such conduct is immoral, even for corporate lawyers. However, Bear Stearns only went offshore for part of the deal. As the Bloomberg article reported, “The bank [Bear Stearns] also used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and protect their U.S. assets during the Caymans proceedings.” So, it appears that, in order to shield themselves from their clients (for whom they had lost 100s of millions of dollars) Bear Stearns did not merely go offshore, but cherry-picked between U.S. domestic and offshore legal jurisdictions to work against the interests of their clients. Talk about integrity, morality and the American Way! Of course, the rot, as it so often does, started at the top.

08-09-2007, 01:02 PM	#3
Maarchk Rear Admiral Upper Half Join Date: Jul 2000 Location: Where the east meets the west. Posts: 3,066	I think i read some hedge fund managers make a billion dollars a year... thats insane... So wait, how do they have assets if they are bankrupt? And how do they just sell the assets and keep it for themselves while the people who invested to create the fund get nothing... Wow... just wow. I know a stock can go to 0 and you lose.. But a hedge fund is a bunch of people giving someone money to buy and sell stocks. If their is any assets, should they not belong to the people? very sad. __________________ "The girl is crafty like ice is cold." "I left my heart in san francisco... And my liver at Moe's Tavern." A real friend is one who listens to you as much as they talk to you.

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08-09-2007, 04:05 PM	#4
Daedalus Lieutenant Commander Join Date: Dec 2002 Posts: 824	It's not just stocks. The Bear funds went bankrupt because they were highly leveraged in debt instruments. A lot of people aren't paying their mortgages. And unlike mutual funds, hedge funds can go short. Congress has so far opened them up to "qualified investors" only. People who are worth (I think) $1M or more. That number may have gone up. Hedge funds, like venture funds, have a 2 and 20 rule. The managing partners take 2% of principal off the top, and 20% of whatever profits they make.

08-09-2007, 08:57 PM	#5
Chgoman Lieutenant Commander Join Date: Apr 2002 Location: Mission Viejo, CA Posts: 696	Sometimes the lawsuits bother me though. People who are considered 'qualified investors' have to have a minimum net worth of at least 1 million along with income limits and certain levels of investment experience. They choose to invest in something such as a hedge fund which can have great returns, but do so at significantly more risk. Investers get all sorts of disclosures and warnings to this effect and have to sign off on everything. Does is suck that one of the recent bankrupt funds lost 80% of thier investors money, sure, but the investor chose to make the investment into a non-diversified fund acknowledging the risk when they made the purchase. With a lot of these funds that follow the latest fad or go for risky investments, they'll be up 30-50% a year for a few years, but people don't sell, they hold on until the fad crashes and then they loose a bunch of money and then bring lawsuits.

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