On Christmas Eve a Bear Stearns client received a present – a check for $1,000 – less some fees. While a check for $1,000 at Christmas time can come in handy, it was no gift since this was to close out an investment by the client in 2001 of almost $120,000!
Accoording to the paperwork provided to the investor, management chose to terminate early the Bear Stearns Multi-Stragegy Warants expiring March 31, 2009. The warrants, stated in the notice provided, were “linked to the performance of the Bear Stearns Multi-Strategy Fund, L.P.” the value of the warrants at maturity was to be based upon the average of the six month-end “net asset value” of the fund. That maturity never occured because the warrants were ended abruptly more than a year early.
According to the notice “the underlying constituents of the Fund were: New Castle Millennium II, L.P., New Castle Market Neutral, L.P. and Bear Stearns Emerging Markets Macro Fund, L.P., Bear Stearns Institutional Leveraged Loan Fund, L.P. Bear Stearns ABS Partners, L.P. and Bear Stearns High-Grade Structured Credit Strageties Enhanced Leverage Fund, L.P., with approximatelly equal wieghting.”
A securities warrant is similar to a securities option, but generally has a much longer holding period. These warrants, for example, were set to expire more than 7 years after their issuance.
Despite their names, the underlying funds upon which the warrants were valued, were reportely heavily invested into sub-prime mortgages and derivative securities. Representations were made to the investors at the time of the purchase regarding the safety of the investments, which maintained a relatively stable value for years, at least as reflected in the statments sent. (It is unknown at this time just who determined the value reported for such warrants.)
For example, having paid approximately $120,000 for each warrant, the value on the statement sent to the investors in May of 2007 was $115,000. Yet, in September, only five months later, the warrant holders were notified the underlying fund and would soon be terminated meaning their warrant investment was in jeaprody!
The notice to the investors stated “The Bear Stearns Multi Strategy Fund has decided to wind-down the Fund effective Septermer 30, 2007.” The notice provided a “table” regarding the potential value of the warrants which is almost unintelligible to those reading the notice.
In any event, the value of each warrant was by December determined to be (exactly) $1,000. We have been provided with no explanation of how that amount was chosen. After a $5.00 service fee, and another small charge, the investor received just under $995. Seemingly lacking was a notation stating “Have a nice day!” (or perhaps “Merry Christmas”)
The securities fraud speicialists at Shepherd Smith and Edwards law firm have represented thousands of investors in claims against hundreds of securities firms, including Bear Stearns and other major U.S. stock brokerage firms. If you or someone you know had lost on investments because of possible misconduct, contact Shepherd Smith and Edwards to arrange a free confidential consultation with one of our attorneys.