Yves Smith at Naked Capitalism submits:
Bloomberg tells us a judge is questioning the legal domicile of the failed Bear funds for bankruptcy purposes:
A federal judge refused to grant permanent protection from U.S. lawsuits for Bear Stearns Cos.’ two bankrupt hedge funds, questioning whether the Cayman Islands should be the principal site of their liquidation.
U.S. Bankruptcy Judge Burton Lifland in New York today said he “will issue a decision in the next week to 10 days” on whether Bear Stearns picked the proper jurisdiction for the funds, whose assets are mostly located in New York.
Lifland denied Bear Stearns’s request for permanent protection from U.S. lawsuits as it liquidates the funds in the Cayman Islands, saying he needed more time to consider the matter. He banned any such suits while he deliberates….
Under Chapter 15 law, a bankrupt company must show a foreign liquidation is a “center of main interest” to qualify in some cases for a ban on lawsuits in the U.S. Bear Stearns failed to prove that in today’s hearing, Lifland said.
Now most funds are not planning to go bankrupt, but the prospect of being subject to US securities litigation is ugly indeed. And some hedge funds who never imagined it would happen to them are at risk.
Wonder how many New York and Fairfield County hedgies who set themselves up in the Caymans or other overseas jurisdictions are now worrying about the wisdom of their legal structures.
When it rains, it pours…..