Seeing through the hedge

The US Securities and Exchanges Commission has accused a former senior hedge-fund manager of defrauding investors of more than US$300 million in what is believed to be one of the largest such losses suffered by hedge fund investors. The civil complaint against 28 year-old Michael Berger, his company, Manhattan Capital Management and the Manhattan Investment Fund that he managed comes as the industry is seeking to rebuild its image after the rescue of Long Term Capital Management, the huge hedge fund which almost collapsed in 1998. Mr Berger is accused of systematically falsifying performance records since inception of the fund in 1996. His strategy entailed short-selling equities, mainly in Internet companies, on the basis that they were overvalued but his losses escalated as the market and especially the technology sector, scaled new heights. The accountants Deloitte & Touche audited Manhattan through an offshore subsidiary in Bermuda. The firm has withdrawn its 1996-98 audits in the wake of the civil suit and is currently carrying out an internal inquiry. The SEC alleges that Mr Berger reported returns of 27.4 per cent in 1997 and 12.4 per cent in 1998 when the fund actually made losses. Its asset base is now below US$50 million.