Bear Stearns Implicated in Investors' Lawsuit

Hedge fund Moore Capital Management was able to pull its $20 million investment out of Manhattan Investment Fund last year -- months before the fund collapsed -- because it got an inside tip that the fund was a massive fraud, new court documents claim. The tipster? Investment bank Bear Stearns(BSC Quote), according to the documents.

Bear, which was Manhattan Investment's clearing broker at the time, advised Moore Capital managing partner Zack Bacon that the fund was a "Ponzi scheme," just as Moore was preparing to invest an additional $4 million, according to the filing. The tip allowed Moore to recoup its full investment and left hundreds of other investors with more than $400 million in losses when Manhattan Investment was shut down by the Securities and Exchange Commission in January and forced into receivership, the court filings state.

And Moore Capital wasn't alone, according to the amended complaint filed last month in a lawsuit filed by Cromer Finance, a group of former Manhattan Investment investors who claim they weren't among those who Bear warned to get out. ...