Heightened Oversight Obligations For Prime Brokers

Law360, New York (May 1, 2007, 12:00 AM EDT) -- In a decision with potential far-reaching implications for investment banks offering prime broker services to hedge funds, on February 15, 2007, the U.S. Bankruptcy Court for the Southern District of New York ordered Bear, Stearns Securities Corp. (“Bear Stearns”) to return $141 million in margin payments plus pre-judgment interest of $38 million to the bankrupt Manhattan Investment Fund Ltd. (the “Fund”).

The order was based on the court’s finding that these payments, which were deposited by the Fund in its account at Bear Stearns to allow...
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