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Shareholders accounting for about 25% of Michael Berger's troubled

Manhattan Investment Fund's

assets met in Geneva Monday to plan legal strategy, and they might be setting their litigious sights across the ocean: New York-based

Bear Stearns



The finger-pointing is just beginning, but Bear, which served as the prime broker to the hedge fund, may be dragged into yet another legal squabble involving a firm it serviced. In the past decade, its connection to

David Askin

and his defunct hedge fund, and the bankrupt and indicted brokerage

A.R. Baron

have damaged Bear's reputation and put a small dent in its finances. Bear says it acted properly regarding the Manhattan Investment Fund.

Berger's problems came to light a little more than a week ago, when word emerged in the hedge fund community that he had misrepresented his returns. Berger admitted this in a Jan. 14 letter to investors.

Then the

Securities and Exchange Commission

filed a

civil suit against Berger, the fund and

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Manhattan Capital Management

, the fund's adviser. The suit charges that Berger overstated the fund's holdings and sent misleading account statements to help raise $350 million from investors since 1996, while hiding the fund's losses. The suit also alleges the fund, which supposedly once had $500 million in assets, now has assets of less than $50 million. Attempts to reach Berger at his office were unsuccessful; his home phone number at his last listed residence, on East 34th Street in Manhattan, is unlisted.

With Berger in the red, lawyers are honing in on deep pockets for a settlement. According to one attorney who asked to remain anonymous and was present at Monday's meeting, Bear, fresh off a $35 million SEC fine for its role as clearing agent for A.R. Baron, is emerging as the chief target of Manhattan Investment Fund investors.

"As a plaintiff attorney, I'd be looking hard at Bear Stearns," says Michael Lange, an attorney at

Berman DeValerio & Pease

. "I'd try to pin down what they knew and when they knew it. They had the poor performance numbers, they had the information on the performance and are claiming they weren't aware of what the fund was representing to its investors." Lange wouldn't say whether he had signed on any of the fund's investors.

Bear said in a recent statement that it looked into the fund after a fund investor asked it to verify performance figures. "Upon examination of the fund's audited financial statements for the year ended 1998, which we asked Mr. Berger to supply, and his subsequent unwillingness to reconcile those records with records maintained by Bear Stearns, we immediately brought the matter to the attention of the SEC," the statement said. This week a spokeswoman would only say that the firm hadn't been served with or named in any lawsuits in connection with the Manhattan Investment Fund.

Bear also issued a statement last week to a Web site and hedge fund tracker, saying it had "no prior knowledge of the fraud." Also, the Web site quoted unnamed investors who said Bear was aware the auditor statements didn't match Bear's trade reports, and encouraged investors to continue their research by talking to

Fund Administration Services (Bermuda)

, an

Ernst & Young

Bermuda affiliate that served as the hedge fund's administrator, and

Deloitte & Touche

. Fund Administration Services declined to comment, and Deloitte & Touche spokesman Rick Hanson said Monday the company was conducting an "internal review" of its audits "strictly for its own purposes."

While the lawyers are Bear hunting, manager Berger may turn out to be the most interesting character in this drama.

According to the SEC's suit, the young Austrian lied about nearly everything, starting with his age (he told investors he was 31; he's 28) and continuing right into doctored brokerage statements.

Berger was battling talk that his fund wasn't doing well as early as last August, when he filed suit in New York against unnamed critics of his firm. That suit shows that at least some in the industry suspected as early as December 1998 that Berger's numbers were phony, and they were spreading the word around the tightly knit hedge fund community.