A Court order of $160 million against Bear Stearns by the Manhattan bankruptcy court sent shockwaves through the biggest Wall Street firms and their most important clients, hedge funds.

A Court order of $160 million against Bear Stearns by the Manhattan bankruptcy court sent shockwaves through the biggest Wall Street firms and their most important clients, hedge funds. 2

A Manhattan bankruptcy court ruling Thursday sent shockwaves through the biggest Wall Street firms and their most important clients, hedge funds.

Bear Stearns was ordered to pay up to $160 million, including interest, to the estate of a failed hedge fund client, Manhattan Investment Fund, after a bankruptcy court judge ruled the bank failed to police fraudulent money transfers in the fund in the months before its collapse.

The former head of the fund, Michael Berger, is a convicted felon who was charged in January 2000 by regulators for using Manhattan Fund to perpetuate a fraud.

Still Bear Stearns, as the fund’s prime broker, is also caught up in the investors’ quest for some of their money back. Judge Burton Lifland of the U.S. bankruptcy court said in an opinion in January that Bear Stearns suspected Berger was engaged in a fraud but didn’t stop him from making 18 transfers totaling $141.5 million, allowing him to continue short selling stocks until the fund collapsed a few months later.

Bear Stears made $2.4 million in prime broker fees from its work with Manhattan Fund. It said Thursday it would appeal the decision. “We are disappointed with the bankruptcy court’s decision, we believe that it is not supported by law or the facts, and we intend to appeal to the district court,” a bank spokesman said.

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