Representatives of two failed Bear Stearns hedge funds appealed a US federal bankruptcy court ruling that required them to be liquidated in U.S. courts and not in the Cayman Islands, as the fund’s directors prefer.
Holding the proceedings in the Cayman Islands, the famed tax shelter, could have shielded the funds’ assets from some US creditors and cut down on press scrutiny.
Simon Lovell Clayton Whicker and Kristen Beighton, who work for KPMG, the fund’s liquidators, filed an appeal of a U.S. Bankruptcy Court ruling handed down Aug. 30 in Manhattan and amended on Sept. 5.
Bear Stearns Asset Management operated the two funds — the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund — that had invested heavily in collateralized debt obligations (CDOs) backed by subprime mortgages.
The securities plunged in value earlier this year amid a downturn in housing and then mortgage markets.
Bankruptcy Judge Burton Lifland last month rejected the funds’ attempt to seek protection from creditors under Chapter 15 of the U.S. Bankruptcy Code, which covers cross-border insolvencies, saying the funds primarily operated in the United States.