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Grps Fight For Info On Failed Offshore Bear Stearns Hedge Fund

November 4, 2007 6:37 p.m.
By Jed Horowitz


NEW YORK (Dow Jones)--Bear Stearns Cos. (BSC) and investors in a highly leveraged hedge fund that went belly up in the summer continue battling over access to fund documents and other material that could provide fodder for litigation.

Directors of Bear's High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) fund, a so-called feeder fund that channeled money into a similarly named hedge fund that lost $650 million on bad supbrime mortgage bets, told investors in a letter Friday they are "winding up the fund" by appointing Cayman Island-based representatives of accounting firm KPMG as voluntary liquidators.

The action upsets plans by non-U.S. investors to vote Nov. 14 on replacing Bear as controlling party of the fund, said a person close to the investors. Although no assets are believed left in the fund, investors are seeking books and records, copies of attorney-client communications and other possible material to prepare a lawsuit. As controlling party, Bear has not been cooperating in providing information, the person said.

A Bear Stearns spokeswoman did not return calls for comment.

The board "no longer has authority" over the feeder fund, according to a copy of the letter obtained by Dow Jones Newswires. It said a vote to replace Bear Stearns "would not affect the authority of the liquidators to conduct the winding-up of the fund."

In a countermove, U.S. investors in the domestic version of the feeder fund have petitioned Bear to let them appoint an independent inspector to monitor their vote on whether FTI Capital should replace Bear as controlling party of the domestic fund. The vote is scheduled for this Wednesday at Bear headquarters in New York.

The person close to investors said Bear had failed in its responsibility to notify all investors of the vote. The governing documents of the domestic fund prohibit the appointment of voluntary liquidators, the person close to the protesting investors said. The protesting investors want FTI to gather information on what went wrong at the fund.

The change in control of the domestic feeder fund will take place if more than 50% of investors, as measured by capital, approve. More than 10% of investors in both funds had requested the votes, requiring Bear under organizing papers to schedule the sessions, the person said.

Non-U.S. investors were scheduled to vote in London on Nov. 14 on replacing the offshore fund's five directors, who were appointed by Bear Stearns Asset Management. The directors' letter said they had appointed the KPMG liquidators, Simon Whicker and Kris Beighton, "in the interest of economy and efficiency."

-By Jed Horowitz, Dow Jones Newswires; 201-938-4047;
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