Bear faces billion-dollar lawsuit from Kinetic
NEW YORK - Struggling investment bank Bear Stearns is facing a lawsuit for $1 billion over the collapse of two of its hedge funds last July, from the funds' liquidators, Kinetic Partners. Bear Stearns is accused of marketing the funds as viable when they were highly vulnerable to a housing market downturn, which led to billion-dollar losses on the funds.
The troubled US bank was bought at a bargain price last month by rival JP Morgan in a Fed-brokered deal to stave off bankruptcy. Kinetic has filed the suit to recoup losses against both Bear Stearns and the funds' auditor, Deloitte & Touche. The funds were invested in asset-backed securities dependent on subprime mortgages, and were frozen in June. Managers' and financiers' negotiations fell apart the following month. The lawsuit claims Bear Stearns and Deloitte & Touche failed to live up to assurances the funds were safe investments.
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