Investors in two Bear Stearns Cos. hedge funds took action against the company Wednesday for allegedly misleading them about the extent of the investment bank’s exposure to risky mortgage-backed securities, a lawyer for the plaintiffs said.
The move comes as the two funds filed for bankruptcy protection, two weeks after the company told investors one was essentially worthless and the other had lost more than 90 percent of its value.
As the fate of those two funds moves into court, Bear Stearns said it moved late Tuesday to prevent investors from pulling money out of a third hedge fund, which had $850 million invested in highly rated mortgage-backed securities.
“There are no plans to shut down the fund,” says Russell Sherman, a Bear Stearns spokesman. “We believe the fund portfolio is well positioned to wait out the market uncertainty. We don’t believe it’s in the interest of our investors to sell assets in this current market environment.”
The two funds filed Tuesday for protection under Chapter 15 of the bankruptcy code, according to court documents.