Navigator sues over hedge fund losses

Date: Tuesday, August 7, 2007
Author: Vivek Ahuja, Financialnews-us.com

The crisis engulfing Bear Stearns over two collapsed hedge funds has deepened after Navigator Capital Partners, an institutional investor, filed what is thought to be the first US court claim against the bank, naming several of its executives and demanding a jury trial in the complaint

Navigator, a Delaware-based investment firm and one of the investors in Bear Stearns’ high-grade structured credit strategies fund, filed a class action claim with the New York Supreme Court yesterday.

The claim, believed to be the first court complaint over the collapse of the fund, alleges Bear Stearns Asset Management and executives responsible for the fund “completely abdicated their responsibilities to the fund and its investors by neglecting to manage the fund in a manner that would minimize risk and control losses in connection with sub-prime mortgage-backed securities, and committed serious disclosure violations by failing to inform investors that they had not fulfilled those responsibilities”.

.The suit also names Ralph Cioffi, a senior managing director who founded the fund, Matthew Tannin, senior managing director and chief operating officer of the fund, and Raymond McGarrigal, a portfolio manager and managing director, as defendants in the case.

The court claim follows wild fluctuations in Bear Stearns’ share price, which has seen the bank’s market capitalisation plunge 13%, losing $2.4bn (€1.7bn) in the past week on investor uncertainty. The collapse of the two funds also prompted rating agency Standard & Poor’s to cut the bank’s rating outlook to negative last week.

Bear Stearns confirmed yesterday that Warren Spector, president and co-chief operating officer, is stepping down in the wake of the crisis.

Last week, a New York law firm filed an arbitration claim with US regulator National Association of Securities Dealers alleging Bear Stearns misled investors.