Bear Stearns and several members of its senior management repeatedly misled investors in two sub-prime hedge funds to keep them from withdrawing money even as the funds were losing much of their value, according to an arbitration claim obtained exclusively by CNBC.
The claim, filed with the National Association of Securities Dealers on behalf of a 73-year-old investor, is the first by a investor who lost a large amount of money in the Bear Stearns High Grade Structured Credit Strategies Fund, or its sister fund known as the Bear Stearns Enhanced High Grade Structured Credit Fund.
Bear recently disclosed that both funds have been so hammered by the meltdown in the sub-prime market that they have almost no value. The claim takes particular aim at the funds’ manager, Ralph Cioffi, but also named--besides Bear Stearns and Cioffi--Richard Marin, the former head of Bear Stearns Asset Management division.
The claim asserts that that over the past year, Cioffi repeatedly downplayed both the exposure of the funds to the sub-prime market and just how bad the performance of the funds’ had deteriorated.