Fund manger 'warned Bear chiefs over leverage use'

11 December 2008

A former stock fund manager at Bear Stearns told the company's executives that some of its funds were taking on too much risk but he was "politely told to mind my own business", according to reports.

James O'Shaughnessy told the Reuters Investment Outlook Summit in New York that his opposition to the investment bank's use of highly-leverage mortgage-backed securities had been "on the record for a long time".

Mr O'Shaughnessy left Bear Stearns in 2007 after eight years to start his own firm.

In March, Bear Stearns - once the fifth largest investment bank in the US - collapsed because of losses linked to the crash in the subprime loans market. It was subsequently forced into a "shotgun marriage" merger with JP Morgan Chase, Reuters noted.

Yet, Mr O'Shaughnessy said, it was not alone in using too much leverage. Indeed, he described the practice as an "epidemic".

"So from my perspective, was there a systemic failure on Wall Street? Yes, there was," he remarked.

Two former Bear Stearns fund managers are set to go on trial in September 2009 over the alleged misleading of investors about the extent of the company's losses during the subprime crisis.

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