Two leading Bermudian firms of accountants and consultants have been named for the first time in connection with a law suit filed against scandal-struck Manhattan Investment Fund in the United States.

The suits against Deloitte and Touche, the fund's accountants, and Ernst & Young, an affiliate of the fund administrators, were filed this month in the United States District Court, the Southern District of New York by Cromer Finance, "individually and on behalf of all others similarly situated''.

Cromer Finance named Michael Berger, Deloitte & Touche, Fund Administration Services (Bermuda) Ltd, Ernst & Young LLP, Bear Stearns Securities Corp and ten other unnamed plaintiffs whom the company say are connected with the suit.

The Class Action Complaint has demanded a trial jury to look into the collapse of the fund.

The hedge fund, which was registered in the British Virgin Islands but was administered and audited by Bermuda companies, admitted in January that it had lost $500 million after previously claiming it had made massive profits.

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

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

The Bermuda Registrar of Companies took the Manhattan Investment Fund to the Supreme Court to officially wind up earlier this month.

In January and February 11 separate writs were filed at the Supreme Court in Bermuda against the fund, its administrators, the Bank of Bermuda as the trust's bankers and Michael Berger, the man behind the scandal. So far claims total $4.762 million in Bermuda alone.

One of these writs was issued by the registrar of companies and related to the winding up and appointment of liquidators.

More than 250 investors bought over 2.5 million shares in the company. Among those who bought into the fund were a number of high profile multi-managers and institutions.

The joint liquidators -- Malcolm Butterfield of KPMG Bermuda and Anthony McMahon of KPMG London -- have written to each of the ten creditors listed at the Supreme Court to ask them to halt their legal actions while they investigate the collapse. But they have no jurisdiction over US lawsuits such as the Cromer Finance one.

The American suit is based on the belief that those named in the action knew that there was something wrong with the fund and failed to disclose it.

For the first time financial advisors Bear Stearns are also named and blamed for perpetuating the fraud.

The legal summons states: "Plaintiff (Cromer Finance), by its attorneys, for its complaint, alleges the following upon personal knowledge as to itself and its own acts, and as to all matters particularly within defendants' knowledge and control, upon information and belief.'' It goes on: "In connection with the offer and sale of shares of the Hedge Fund to investors, defendants misrepresented that the Hedge Fund had hundreds of millions of dollars in assets and had been consistently profitable in its investment management activities. In fact, the hedge fund currently has assets of approximately only $35 million and investors in the hedge fund have lost in excess of $400 million as a result of the hedge fund's trading activities. The conduct of defendants as described herein resulted in the loss of approximately 90 percent of the capital invested in the hedge fund.'' The statement says the hedge fund also engaged in trading, including the short-sale, of securities of Internet and high-tech companies, the results of which were undisclosed to investors. It adds that this short-selling generated hundreds of millions of dollars in losses for the hedge fund. In order to hide these monumental trading losses from investors, defendants created and distributed materially misleading account statements and financial statements which overstated the hedge fund's investment performance and the value of the assets held by the hedge fund.

The suit goes on to state: "The Hedge Fund's audited financial statements were prepared by defendant Deloitte & Touche, purportedly pursuant to US accounting standards. The ostensible accuracy of the financial statements was confirmed by defendant Fund Administration Services (Bermuda) Ltd., the Hedge Fund's administrator. Fund Administration is owned and controlled by defendant Ernst & Young L.L.P.

The plaintiff, Cromer Finance Ltd., is a British Virgin Islands registered investment corporation. Cromer made purchases of securities issued to investors by the hedge fund and claims it was damaged by the fund.

COURTS CTS