Barclays sues Bear Stearns over hedge funds

NEW YORK (Reuters) - Barclays Bank Plc (BARC.L) on Wednesday accused Bear Stearns Co Inc BSC.N of using two hedge funds that collapsed last summer as places to unload troubled assets.

The London-based bank's allegations appear in a lawsuit filed in U.S. Court for the Southern District of New York in Manhattan.

Bear Stearns was not immediately available for comment.

Barclays described the collapse of two Bear Stearns-run hedge funds as one of the most shocking in the last decade. The bank said it was the sole shareholder to a Bear Stearns enhanced leverage fund with exposure to risky subprime mortgages. That fund and another run by Bear Stearns had more than $20 billion in assets before their collapse.

"Bear Stearns ... used the enhanced fund as a place to unload excessively risky or troubled assets that could not be sold to other investors at the prices paid by the enhanced fund," Barclays said in its complaint.

At the end of May, for example, Bear Stearns Asset Management had the enhanced fund buy about $500 million of the riskiest classes of securities in a deal that it managed, Barclays' complaint says.

"BSAM did so despite the fact that investment restrictions it had promised Barclays did not permit those securities to be held in the fund," the complaint said.

(Reporting by Tim McLaughlin; Editing by Jeffrey Benkoe, Leslie Gevirtz)