| NEW YORK, April 25
NEW YORK, April 25 Bear Stearns Co Inc BSC.N
has been hit with an arbitration claim from an investor who
says he was duped into increasing his stake in a hedge fund
tied to mortgage securities just before the fund halted
redemptions last year.
The claim comes as the investment bank faces a slew of
lawsuits and arbitration claims from unhappy investors. Hit by
wrong-way bets on mortgage markets, Bear Stearns is set to be
bought by JPMorgan Chase & Co (JPM.N), which will inherit its
Laurence Stone, of Villanova, Pennsylvania, contends in
arbitration papers he was "fraudulently induced and misled"
into investing $9 million in the Bear Stearns Asset Backed
Securities Partners LP fund. The fund halted redemptions last
July after jittery investors wanted to yank their money.
Stone, 43, is seeking about $7.6 million in losses and
damages, according to the claim, filed with the Financial
Industry Regulatory Authority on April 18. He says his
investment represented the proceeds from the sale of his
merchant payment company and that he had sought to have the
money invested conservatively.
Stone initially invested $5 million. When he grew concerned
about the health of the mortgage industry, he spoke by
telephone in April 2007 with the fund's senior manager, Colin
Gordon, who according to the arbitration papers told Stone the
correction in the mortgage markets had fully "run its course."
Stone then invested $4 million more in the fund, he said.
Soon after, the fund announced it was stopping redemptions. At
the time, the fund's assets were estimated at $850 million.
Stone, in a telephone interview with Reuters on Friday,
said he had "never felt so violated in my life" about having
such sudden, negative returns in a fund.
"One, they misrepresented to me the nature of the fund and
the real risk involved, and two, they are basically hiding all
pricing information" about the fund's holdings, Stone said.
Bear Stearns spokesman Russell Sherman was not immediately
available for comment. A message left on Gordon's office voice
mail was not immediately returned.
Stone's claims were filed by law firms Rich & Intelisano
LLP and Zamansky & Associates LLC in New York.
The hedge fund held assets tied to mortgages made to prime
borrowers, as well as people with decent credit records, but
who are unable or unwilling to document their income, known as
Bear has had problems with other hedge funds. Last year,
the company said its High-Grade Structured Credit Strategies
Fund and High-Grade Structured Credit Strategies Enhanced
Leverage Fund, had very little value. Several arbitration
claims already have been brought related to those two funds,
which invested in bonds linked to subprime mortgages.
Ross Intelisano, one of Stone's attorneys, said on Friday
that his firm had also brought a new arbitration claim against
Bear on behalf of investors who lost about $45 million in the
collapse of the two subprime-linked funds. He said the latest
claim, filed earlier this month, was believed to be the biggest
to date related to the collapse of the two funds.
(Editing by Andre Grenon)