“This begins to explain how the subprime genie got out of the bottle,” Galvin told the Associated Press in an interview. The meltdown in the mortgage industry “happened in part because there was a seemingly limitless amount of capital put in the hands of people who had conflicts of interest that weren't disclosed,” he said.
The hedge funds--Cayman Islands-based Bear Stearns' High Grade Structured Credit Strategies Fund and the Enhanced Leverage Fund – bet wrongly on securities that were backed by subprime loans for home buyers with poor credit ratings. When homeowners defaulted, losses at the hedge funds mounted. Bear Stearns then informed its investors that their investments were worthless.
In December, investors filed a new round of legal claims against Bear Stearns claiming the bank mismanaged the hedge funds and concealed the condition of the funds until it was too late.
"Officials at Bear Stearns engaged in a concerted effort to conceal the true state of affairs at both of these hedge funds for an extended period of time before they imploded," attorney Steve Caruso of Maddox, Hargett & Caruso in New York, one of four firms representing plaintiffs, said in December.
Another plaintiffs' attorney, Ryan Bakhtiari of Beverly Hills, said Bear Stearns used the hedge funds "as a dumping ground."
"Given Bear Stearns' dominance in the mortgage-backed securities underwriting market, they knew or should have known how much subprime exposure both of these hedge funds faced," Bakhitari said in December. "We're finding, in our investigation of these funds, that many investors in these funds simply were unaware of what was being held in their portfolios because it was not adequately disclosed."
On Monday, a lawsuit was filed against Bear Stearns on behalf of investors alleging the company issued materially false and misleading statements regarding its financial condition
The hedge funds--Cayman Islands-based Bear Stearns' High Grade Structured Credit Strategies Fund and the Enhanced Leverage Fund – bet wrongly on securities that were backed by subprime loans for home buyers with poor credit ratings. When homeowners defaulted, losses at the hedge funds mounted. Bear Stearns then informed its investors that their investments were worthless.
In December, investors filed a new round of legal claims against Bear Stearns claiming the bank mismanaged the hedge funds and concealed the condition of the funds until it was too late.
"Officials at Bear Stearns engaged in a concerted effort to conceal the true state of affairs at both of these hedge funds for an extended period of time before they imploded," attorney Steve Caruso of Maddox, Hargett & Caruso in New York, one of four firms representing plaintiffs, said in December.
"Given Bear Stearns' dominance in the mortgage-backed securities underwriting market, they knew or should have known how much subprime exposure both of these hedge funds faced," Bakhitari said in December. "We're finding, in our investigation of these funds, that many investors in these funds simply were unaware of what was being held in their portfolios because it was not adequately disclosed."
On Monday, a lawsuit was filed against Bear Stearns on behalf of investors alleging the company issued materially false and misleading statements regarding its financial condition
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