Subprime City Confidential: Aug. 7, 2007

Bear Stearns' tropical fire sale; Will Fannie and Freddie save the day?; Luminent dims; plus more dispatches from the subprime front


Ahh, sun, sand, and subprimes. According to a Bloomberg report, Bear Stearns Cos. (BSC) has decided to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York -- a move that may limit creditors' and investors' ability to get their money back. While most of their assets are in New York, the funds filed for bankruptcy protection July 31 in a court in the Caymans, where they are incorporated. The Bloomberg report also says Bear also used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and protect their U.S. assets during the Caymans proceedings. Now, of course, there’s nothing terribly unusual about this. It's worth noting that tussles between creditors and managements over bankruptcy venues occur even within the U.S. And institutional creditors and investors know there are more risks when they turn money over to entities registered offshore. Still, the tropical fire-sale may not be the savviest P.R. move for a company that's already seen its share of bad publicity.

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