The Securities and Exchange Commission has announced that executives at an Ohio brokerage firm linked to Manhattan Investment Fund's $430 million losses have settled a federal civil complaint.

The SEC said Fund Asset Management (FAM), was instrumental in aiding the fund manager, Michael Berger, in carrying out his fraud and duping of the Bermuda-based fund administrator, Ernst & Young affiliate Fund Administration (Bermuda), and its Bermuda auditors, Deloitte & Touche.

Berger told the fund's administrator, auditor and investors that FAM was the majority holder of Manhattan's cash and securities. He then sent statements that purported to come from FAM that misrepresented the fund's net asset value, the SEC said.

The SEC said FAM, a Columbus-based broker-dealer, its owner James Rader, 56, and its vice president, Debra Kennedy, 49, were ordered to return $641,877 in commissions from trading, based on agency findings that they had contributed to securities fraud.

However, the firm told SEC investigators that due to a lack of funds, it could not pay more than $25,000. Rader and Kennedy neither admitted nor denied guilt, according to an SEC finding.

The filing said Kennedy sent Berger the brokerage's information directly, rather than to auditor Deloitte & Touche and included information from Bear Stearns and never notified the auditor.

Berger then removed the Bear Stearns statements and substituted false FAM year-end account statements.

"This circumvention of the audit confirmation process...made it possible for Berger to perpetuate his fraudulent scheme," the SEC documents said.

The agency also said FAM helped Berger deceive Fund Administration Services of Bermuda.

The SEC said Berger would use FAM letterheads to supply fictitious portfolio valuations and when Kennedy learned that Berger had reprogrammed his own fax machine to make it appear as though valuations had come from FAM's office, she did not notify the administrator, and "with Rader's knowledge and approval, forwarded the fund administrator's request to Berger, making it possible for Berger to again mislead the fund administrator".

Berger has returned to a criminal courtroom in the US and sought to withdraw his guilty plea and go to trial.

After an hour of oral arguments in court earlier this week, US District Court Judge Victor Marrero did not make a decision but said one would be forthcoming as soon as possible.

Earlier this week the Bermuda affiliate of Ernst & Young, Fund Administration (Bermuda) Inc., who locally administered the British Virgin Island's hedge fund settled out of court announced that the company will no longer be involved in the protracted legal battle currently in front of US District Court Judge Denise Cote.

In January 2000, Manhattan Investment Fund, which was administered and audited in Bermuda, admitted that it had lost $500 million after previously claiming it had made massive profits.

The scandal was unearthed after Deloitte & Touche LLP, the Bermuda auditors, withdrew approval for the fund's financial statements for 1996, 1997 and 1998.

A subsequent investigation by Ernst & Young affiliate Fund Administration (Bermuda) Inc. revealed the extent of the losses and accused the fund's managers of misrepresentation.

Shareholders who lost their money in the scheme sued the fund managers, administrators and Berger.

This week's SEC civil ruling is part of the many legal actions spawned by the collapse of the hedge fund in early 2000.

The fund's spectacular failure triggered charges of securities fraud to which Berger pleaded guilty in November of that year.

About 280 investors lost money when the 30-year-old Austrian native's attempts to sell short overvalued technology stocks failed to keep pace with a rising market.

Berger has cited mental illness and ineffective counsel by his previous attorneys as grounds for being able to withdraw his plea.

Berger was found liable for securities fraud and ordered to pay US$20 million in a summary judgement issued on November 13, 2001 by a district court judge in New York.

The judgment was granted in favour of the SEC which alleged that the sum represented the fees Berger's Manhattan Capital Management, Inc. (MCM) earned from managing the Manhattan hedge fund.