Investor Group Sues Beacon Hill

A group of investors filed a lawsuit Tuesday against collapsed hedge fund manager Beacon Hill Asset Management, which lost more than $400 million last year on soured trades in the bond market.

The lawsuit, filed in the U.S. Southern District Court of New York, alleges that Beacon Hill, based in Summit, N.J., misled investors about the value and risks of its family of funds and concealed the funds’ losses.

The investor group that filed the suit had a $79 million in Beacon Hill’s funds.

Beacon Hill officials could not be reached for comment on the suit.

The investor suit also named Asset Alliance Corp. as a defendant. In February, Asset Alliance, which has a 50% stake in Beacon Hill, filed a $500-million arbitration claim against Beacon Hill.

The Securities and Exchange Commission filed civil fraud charges against Beacon Hill in November 2002. Federal prosecutors in Newark, N.J., have opened a criminal probe.

In October, Beacon Hill stunned investors by admitting its Bristol and Safe Harbor funds had fallen more than 50% in value, or $400 million.

According to the lawsuit, Beacon Hill represented that its funds would be invested in bonds backed by mortgage loans, using low-risk hedge tactics. Instead, Beacon Hill took a large short position in Treasury bonds beginning in July 2002, betting that interest rates would rise. But when interest rates continued to fall, the funds’ value fell, according to the plaintiffs.