Lawyers investigate following collapse of Beacon Hill funds

european investors examining possible civil action against us group

European investors have enlisted US lawyers with a view to taking civil action against Beacon Hill Asset Management and related parties involved in the collapse in value of some of the company's hedge funds.

Scott Berman, litigation partner at the New York lawyers Brown Rudnick Berlack Israels, said some European investors, mainly fund of funds managers invested in Beacon Hill AM's offshore Bristol fund, are to join US investors in any group civil action the attorneys see as possible.

Although Berman said that at present he was just investigating whether an action was feasible, he warned the law company would not just stop at action against Beacon Hill AM itself if necessary.

He said: 'In terms of who committed the wrong in this case, I would start by looking at the fund managers but also look at the professionals, all the counterparties involved.

'I will investigate any party that did business with this fund to see who may be responsible.'

Berman said this search will include examining actions of auditors, custodians and administrators dealing with Beacon Hill AM's funds.

He added that initiating any investor's civil suit need not wait until the conclusion of the suit currently being brought against Beacon Hill AM by the SEC.

On 7 November, the SEC charged Beacon Hill AM with a violation of the anti-fraud provisions of the US Investment Advisers Act.

The SEC alleged that 'at least during July through (to the end of) September 2002, Beacon Hill AM reported net asset values and corresponding returns to fund investors that it knew or should have known were materially overstated.'

Beacon Hill's funds in the SEC's complaint primarily invest in fixed income assets, mainly mortgage-backed securities.

The SEC is seeking civil penalties against Beacon Hill AM as the main defendant, in relation to its management of the Bristol Fund, Safe Harbour Fund LP and Milestone Plus Partners LP via a master fund, Beacon Hill Master Ltd.

The SEC complaint stated: 'On 8 October, Beacon Hill reported to investors the Safe Harbor and Bristol funds had suffered losses estimated at 25% during September.'

'On 17 October, however, Beacon Hill reported to investors losses were about 54%, more than double the amount reported on 8 October, including losses that had not been reported during prior periods.' The firm 'directly or indirectly engaged in transactions, practices or courses of business which operated as a fraud or deceit upon the funds and investors in the funds,' the SEC's complaint said.

At the start of November, Beacon Hill relinquished management of roughly $400m left in its funds ' down from about $880m in them at the start of September ' and handed it over to another asset management group.

Berman said he did not need to wait until the SEC's action was finished before starting his own case on behalf of investors. 'It is quite clear there was some mis-pricing and mis-valuation in this case, but the question was, how long was it going on and who was involved,' he added.