SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17230 / November 13, 2001
Securities and Exchange Commission v. Michael W. Berger, Manhattan Investment Fund Ltd., and Manhattan Capital Management, Inc., Civil Action No. 00 Civ. 0333 (DLC) (HP) (S.D.N.Y)
COMMISSION OBTAINS $20 MILLION JUDGMENT AGAINST MICHAEL W. BERGER IN HEDGE FUND FRAUD CASE
On November 13, 2001, the Honorable Denise Cote of the United States District Court for the Southern District of New York issued an opinion and order granting the Commission's motion for summary judgment against Michael W. Berger, the former investment manager of a hedge fund known as the Manhattan Investment Fund, Ltd. (the "Fund"). The judgment in SEC v. Michael Berger et al. finds Berger liable for securities fraud, orders him to pay disgorgement of $20,007,233.68 and a civil penalty of $100,000 and permanently enjoins him from violating the antifraud provisions of the federal securities laws. The $20,007,233.68 disgorgement figure represents $19,874,735.44 in management and incentive fees that Manhattan Capital Management, Inc. ("MCM"), the advisory firm owned and controlled by Berger, was paid by the Fund, as well as $132,498.24 in prejudgment interest.
In its Complaint filed January 18, 2000, the Commission charged Berger, MCM and the Fund with a massive fraud in violation of the antifraud provisions of the federal securities laws. Berger, 30, is an Austrian citizen who resides in New York City. The Fund was organized under the laws of the British Virgin Islands and was open to foreign investors and tax-exempt U.S. investors. MCM was the New York-based investment manager of the Fund. Berger owned and controlled MCM and was its only officer. Through MCM, Berger directed the investment activities of the Fund.
In her opinion and order, Judge Cote found that Berger commenced his fraudulent scheme almost immediately after the Fund began its operations in mid-1996. Judge Cote further found that, as a result of Berger's trading strategy, the Fund consistently suffered losses which ultimately totaled nearly $400 million. Instead of accurately reporting the losses the Fund was experiencing, however Berger created fictitious account statements which substantially overstated the market value of the Fund's holdings. Judge Cote found that Berger caused a fictitious account statement to be forwarded to the Fund's administrator in Bermuda every month for 39 consecutive months. The Fund's administrator then calculated the Fund's net asset value and the market value of each investor's shares in the Fund based on Berger's fabricated figures, and sent monthly account statements based on these calculations to the Fund's investors. Judge Cote concluded that "the fraud was conceived and executed in New York by Berger" and that "Berger acted willfully and knowingly in carrying out the fraud."
Both MCM and the Fund are the subject of Chapter 11 bankruptcy proceedings pending in the United States Bankruptcy Court for the Southern District of New York. Mr. Berger remains the subject of a criminal proceeding brought by the United States Attorney for the Southern District of New York.