A settlement pending in Manhattan federal court will parcel out $32 million to investors in the Manhattan Investment Fund, nearly four years to the day after the spectacular $400 million collapse of manager Michael Berger's tech-bearish hedge fund.

The Bermuda affiliate of Deloitte Touche Tohmatsu reached an agreement last month with a group of investors seeking damages over its auditing work for the hedge fund in the late 1990s. The $32 million payout, about $7.4 million of which will go to legal fees, is subject to approval from Justice Denise Cote, the bankruptcy judge responsible for settling some of the litigation that flowed from the fund's collapse in early 2000. A final hearing is scheduled for Jan. 23.

Berger was convicted in 2000 of falsifying returns for his fund, which was betting against major technology stocks through its collapse in January of that year. He then withdrew his guilty plea. After a lengthy legal battle in which the 30-year-old Austrian fired three sets of criminal defense attorneys, Berger apparently fled the country after failing to show up in court the day he was to be sentenced to a 10-year prison term and fines of up to $1.25 million. He also faces a $20 million fine from the

Securities and Exchange Commission

.

The preliminary settlement, brought by investors led by Cromer Finance Ltd., took almost three years to arrange. The plaintiffs complained that Deloitte's Bermuda office, which was responsible for auditing the fund, missed critical indications that Berger was playing fast and loose with investors' money.

Deloitte & Touche Bermuda approved Berger's falsified books in 1996, 1997 and 1998. Berger reported returns of 15%, 30% and 12% during those years, with an additional 14% return reported in 1999. The hedge fund swelled to approximately $500 million as investors, mostly European banks and funds of hedge funds, signed on for what was actually a Ponzi scheme. Berger was sending Deloitte fake trading documents using a fax machine rigged to look like the paperwork was coming directly from the fund administrator, and using new investments to cover the margin payments on his increasingly expensive short positions.

"Deloitte & Touche Bermuda believes that it performed its audit work in accordance with all applicable professional standards," the firm said in a prepared statement. "Although the six-person Bermuda partnership believes that the claims are without merit, and that the Cromer case involved an inappropriate and erroneous application of U.S. law, Deloitte & Touche Bermuda decided to settle this nearly 4-year-old case for a fraction of the claimed damages to avoid the time and expense of further protracted litigation."

Another investor suit is still working its way through the courts.

The

New York Post

last February reported that Berger was seen on the tiny Caribbean island of Dominica, which frequently sells "economic passports" to non-nationals.

There is no extradition treaty between Dominica and the U.S., said Joseph Bondy, Berger's criminal defense attorney at the time of his disappearance. Bondy said he has not heard from his client since Feb. 21, 2002, a week before his sentencing date.