Bear Stearns, Deloitte & Touche Sued over Hedge Fund Losses

April 8, 2008

The liquidators of two Bear Stearns Cos mortgage hedge funds that collapsed last year, filed suit Monday against the company and its auditor, Deloitte & Touche, seeking to recover over $1 billion in losses.

The suit, filed in U.S. District Court in Manhattan, accuses Bear, the managers of the hedge fund, and Deloitte, of not living up to assurances that the funds were relatively safe and conservative investment vehicles.

The liquidators added that the funds were never designed to withstand even a “slight downtick” in the housing market.

Bear Stearns and its hedge fund managers “conceived, marketed and managed hedge funds that they knew would be viable so long as – but only so long as – the U.S. housing market continued to rise,” the suit said.

The suit charges that the company, the fund managers, and Deloitte violated their fiduciary and professional duties. The suit said Deloitte’s preparation of the funds’ audits was “at a minimum negligent.”

The suit is also seeking punitive damages.

Bear Stearns, which is being acquired by JPMorgan Chase , declined to comment on the lawsuit and a Deloitte spokesman did not immediately return calls seeking comment.

Geoffrey Varga and William Cleghorn, who filed the suit, were appointed as liquidators of the funds in March by the Grand Court of the Cayman Islands, according to the lawsuit.

(Editing by Tim Dobbyn)

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