Manhattan Investment Fund fraud

Manhattan Investment Fund was a hedge fund managed by Michael Berger, who pursued an investment strategy of betting against US stocks that appeared to be over-valued. During the stock market bubble of the late 1990s, this strategy led to about $400 million in losses on IT related products. Berger hid the losses from the investors in the fund for more than three years. This was considered a major financial scandal in that time.[1]

The Manhattan Investment Fund fraud resembled the Madoff fraud in certain respects. In both cases regulators failed to catch the fraud. The broker-dealer, a heavily regulated firm, enabled Berger to mislead his clients and the fund's administrator and auditor.[2]

After Bear Stearns, the fund's prime broker, complained to the Securities and Exchange Commission, the fund was shot down and a court-appointed trustee, Helen Gredd, was given control of the remaining assets.[3] The lawsuits from the fraud lasted many years, including a case by the trustee against Bear Stearns.[4]

Berger was charged with fraud, but he jumped bail and did not show up at the New York court where he was to be sentenced. After five years as a fugitive, he was arrested in Austria.[5] As an Austrian citizen he was not extradited to the US, where he would have faced a  6 1⁄2-year term for the fraud and another five years for jumping bail. He was in prison for almost two years in Austria.

References

  1. ↑
  2. ↑ Chidem Kurdas, "Does Regulation Prevent Fraud: The Case of Manhattan Hedge Fund," The Independent Review, Winter 2009, v.13. n.3.
  3. ↑ SEC Charges Hedge Fund and Its Adviser With Fraud, Securities and Exchange Commission Litigation Release No. 16412/ January 19, 2000
  4. ↑
  5. ↑ U.S. Hedge Fund "Fugitive Berger Caught in Austria" By Philipp Grontzki and David Glovin, Bloomberg News, July 9, 2007.
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