When two hedge funds at Bear Stearns Asset Management collapsed in the summer of 2007, investors moved swiftly — but apparently not swiftly enough — to protect their assets. One step ahead of the game, the funds retained accounting giant KPMG to liquidate assets before anyone could wrest control of them. And it did so with the blessing of the funds’ boards of directors. At that time, Bear Stearns Asset Management, a New York–based registered investment adviser — and part of Bear Stearns Cos., which owned investment bank Bear, Stearns & Co. — managed about $45.6 billion of client assets in a variety of investment vehicles, including hedge funds.
But weren’t the directors supposed to be looking out for the people who had collectively put $1.6 billion into the two hedge funds? Yes — under the terms of the rules establishing each fund — but that doesn’t change the fact that it seemed...