Employees at Bermuda's Deloitte & Touche accounting firm were told by a leading broker that they were concerned about Manhattan Investment Fund a year before it collapsed.

According to testimony to the Securities and Exchange Commission in the United States, officials of Bear Stearns Cos. Inc., the US investment bank, grew suspicious about the Manhattan Investment Fund and told Deloitte & Touche LLP, the fund's auditors in Bermuda.

The testimony, obtained by the Canadian Financial Post, is expected to figure prominently in civil suits being brought against Bear Stearns and Deloitte & Touche by former investors in the fund.

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

Liquidators in Bermuda are currently investigating what happened to the fund and its administration, and the action has halted all law suits on the Island against the fund, its administrator, Bank of Bermuda as its banker and Mr.

Berger.

But in the United States further action is being taken. These investors are accusing the firms (Deloitte & Touche and Bear Stearns) of aiding and abetting Manhattan in committing fraud, in what has become the hedge fund industry's most costly scandal.

They also are alleging that Bear Stearns, which served as the fund's prime broker, tipped off preferred clients to the scheme so they could withdraw funds early without suffering losses.

Bear Stearns has denied the charges.

"We reiterate that when all the facts are known, it will be clear that we did not do anything wrong and the claims against us are without merit, ''a spokeswoman said.

Officials at Deloitte & Touche, which supplied audits for Manhattan from 1996 to 1998, have not commented on the matter.

Ernst & Young, whose offshore affiliate Fund Administration Services, served as the fund's administrator, is also named in the suits.

The SEC is still investigating the matter and has not brought charges against the firms.

According to papers with the SEC, James Calvin, a partner at Deloitte, told authorities that Fred Shilling, the head of the prime brokerage business at Bear Stearns, called him in February, 1999, to express concerns over Manhattan's reported performance.

Mr. Shilling appeared troubled that Manhattan was showing impressive gains by taking short positions against technology stocks, which were booming at the time, Mr. Calvin said.

Mr. Calvin said he subsequently sent an e-mail message to a colleague at the auditor's Bermuda affiliate to alert him.

After contacting the fund's administrator, the Deloitte auditor in Bermuda replied that an official there "had heard something similar'', Mr. Calvin said.

Mr. Calvin told the SEC he assumed his colleague was looking into Manhattan, but said he did not recall any further conversations about the matter.