Judge Burton Lifland of the southern New York court recently announced his decision regarding the bankruptcies of two Bear Stearns Cayman Island hedge funds, Lifland said that he is keeping the funds' assets out of creditors' reach for another ten days, during which he will weigh whether to grant them Chapter 15 protection.
"The only adhesive connection with the Cayman Islands that the funds have is the fact that they are registered there," Lifland wrote in a ruling in New York, noting that most assets were originally in the U.S.
The insolvent funds were first granted the preliminary injunction on Aug. 9 by effectively halting any pending lawsuits in the U.S.
"There are no employees or managers in the Cayman Islands, the investment manager for the funds is located in New York, the administrator that runs the back-office operations of the funds is in the United States along with the funds' books and records, and prior to the commencement of the foreign proceeding, all of the funds' liquid assets were located in the United States," Lifland wrote.
The two funds bet heavily on subprime mortgage loans and as defaults increased, creditors began to clamor for their collateral, leaving the funds short on cash.
According to an AP report, provisional liquidators working to unwind the funds in the Caymans estimate that the High-Grade Structured Credit Strategies Master Fund could see recoveries of $25 million, and the smaller High-Grade Structured Credit Strategies Enhanced Leverage Master Fund could see recoveries of less than $50 million.
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