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West Palm Beach (HedgeCo.net) – In a letter to investors, Hedge Fund manager Pentwater Capital announced that due to a number of unexpected redemption notices for year-end they have suspended redemptions and withdrawals, effective immediately.

"The entire hedge fund industry is bracing for large redemptions at year-end so as not to become forced sellers in the midst of a severe market crisis," says the Pentwater letter, "In turn, this has put additional pressure on hedge fund investors to find liquidity wherever they can, because they have to fund their own potential redemptions."

"If the Fund were to meet the year-end redemption requests we have received, the Fund would be forced to sell more of its investments into one of the worst markets since the great depression."

The fund has instead opted to create two new classes that have modified liquidity, fee and expense provisions as compared with the current classes. Investors will have the choice to transfer all or part of their investment into one or both of the new classes or remain in the existing classes.

"We will allow investors that wish to invest new capital to do so in one of these new classes and until further notice allow them to retain the benefit of their existing high water mark on any new investment. Further, investors that have already submitted a redemption notice will have a one-time option to rescind that notice, reduce the size of their redemption request, and/or choose to participate in one of our new classes."

Pentwater was not immediately available for comment.

Alex Akesson

Editor for HedgeCo.Net
Email: alex@hedgeco.net

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New York (HedgeCo.Net) – The two managers behind Bear Stearns’ infamous failed hedge funds have surrendered to face charges, in what will be the first criminal lawsuit stemming from the subprime mortgage fallout.

Ralph Cioffi, 52, and Matthew Tannin, 46, are part of an indictment resulting from a yearlong federal securities fraud investigation, according to a law enforcement official who spoke to The Associated Press.

Although Tannin’s lawyer is quick to pronounce his innocence, the two men are accused of misleading investors about market conditions and the risks associated with the Bear
Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund and the High-Grade Structured Credit Strategies Master Fund.

Using heavy leverage, the funds invested in subprime-mortgage backed securities that started to plummet in value amidst the record number of foreclosures.  The managers are accused of hiding performance information as the fund started to lose value rapidly, even citing it as “positive” at specific low points.

After a $1.6 billion failed rescue attempt by Bear Stearns, the funds were shut down in June 2007, leaving investors with nothing more than an apology.  

This isn’t the first time Cioffi and Tannin have been hit with allegations.  After the implosion of the funds, Barclays Bank, backed by other investors sued Bear Stearns, claiming they were misled about the funds as well.  

Susan Brune, Tannin’s lawyer states, "He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."  

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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