Sunday, March 30, 2008

KPMG Out As Bear Liquidator

There's a Cayman Islands subplot to the ongoing drama of Bear Stearns.

The Grand Court there recently replaced KPMG Inc. as the liquidator of two now-infamous Bear Stearns hedge funds with lots of nasty subprime exposure.

The two funds have not-so-snappy names. One is the Bear Stearns High-Grade Structured Credit (Overseas) Ltd. The other is the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd.

Mother Bear in New York last summer opted for the voluntary liquidation of these two funds in the Caymans, under whose laws the funds were organized.

Last month, a high muckedy-muck there ordered new liquidators: Geoffrey Varga and William Cleghorn of Kinetic Partners LLP, an international auditing and compliance consultancy founded in the spring of 2005. An auditing-world greybeard is out, a spring chicken is in.

According to an announcement from Kinetic Partners, a majority of investors sought the replacement of the KPMG liquidators.

"Investors also wanted a full and detailed investigation into the causes of the Feeder Funds' downfall to be undertaken, anticipating that the results would likely lead to the prosecution of claims for recovery against any of the Feeder Funds' direct and/or indirect control parties or service providers who appear to have any degree of responsibility for the Funds' losses," according to a statement from Kinetic Partners.

What's this all about? The judge seemed to go out of his way to et KPMG itself off any hypothetical 'hook.' He said (I'm quoting from a newsletter published by KYC News): "No suggestion whatsoever of impropriety or incompetence on the part of the Joint Voluntary Liquidators is intended. On the contrary, all parties have been keen to acknowledge the high reputation of KPMG...."

So KPMG presumably isn't one of those "control parties or service providers" against whom, the investors believe, liability might be found? It appears not.

The judge also seemed to think, though, that some of the lawyers associated with these funds had acted in a suspicious manner, and presumably bringing Kinetic into the picture will jumpstart an investigation of their behavior.

There are a million stories in this dying Bear.

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