Barclays sues Bear over fund collapse

NEW YORK, Dec. 19 (UPI) -- Barclays PLC sued Bear Stearns Cos. Wednesday alleging the New York firm misled it about two big hedge funds that collapsed in the subprime mortgage debacle.

In a complaint filed in U.S. District Court in New York, Barclays alleges Bear, its Bear Stearns Asset Management Inc. money-management unit and two senior asset-management executives defrauded the British financial-services giant.

The executives, Ralph Cioffi and Matthew Tannin, managed the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund.

The funds collapsed in July, wiping out $1.6 billion in investor capital. Barclays, a major lender to the enhanced fund, alleges the defendants knew the funds would likely collapse, but hid the information from Barclays officials.

It cites a February e-mail in which Tannin, a senior managing director, allegedly told Barclays the enhanced fund was having its "best month ever" and the hedges were "working beautifully."

Cioffi, a fund manager, left Bear last week as U.S. prosecutors examined if he withdrew money from the funds.

The lawsuit, which seeks unspecified damages and demands a jury trial, includes claims of fraud, conspiracy and breach of fiduciary duty.

A Bear spokeswoman told The Wall Street Journal the firm would defend itself "vigorously" against the allegations.