A hedge fund is a lightly regulated and highly leveraged private investment partnership that offers investors in stocks, bonds or currency extraordinary gains with above-average risk.-- Reuters The man behind the Manhattan Investment Fund scandal on Monday pleaded guilty to securities fraud charges in the United States, claiming he lost money because markets turned against him.

Austrian Michael Berger who prosecutors say lost more than $400 million of investors' money by betting the wrong way on Internet stocks, could now face up to ten years in prison and fines of $1.25 million.

Mr. Berger, 29, said as he entered the plea before U.S. District Judge Victor Marrero: "I felt that the ends would justify the means. The markets turned against me.'' Mr. Berger also said he could not face telling investors that he had lost their money at the time.

"I was not able and not capable to admit the losses,'' he said to the judge on Monday. "I severely regret those actions and I apologise.'' The hedge fund Mr. Berger ran was registered in the British Virgin Islands but administered and audited by Bermuda companies.

In January, 2000 Mr. Berger admitted the fund had lost $500 million after previously claiming it had made massive profits.

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

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

In New York on Monday Mr. Berger was accused of cheating foreign investors and tax-exempt US entities since August 1995 through the Manhattan Investment Fund.

Prosecutors said Mr. Berger, beginning at the age of 23, convinced at least 300 investors to offer more than $575 million to the hedge fund.

He then took much of the money and bet that the stocks of Internet-related companies would fall. Instead, they continued to go up and up.

Berger operated the fund from his Park Avenue offices, allowing foreign investors and tax-exempt US pension funds and trusts to invest in the short-selling of securities.

Short-selling involves the fund manager, e.g. Mr. Berger, borrowing stocks and then selling them with the hope that the price will fall and he will be able to buy them back short or for a lower price, hence making money. But if the stock price goes up, he would have to buy them back for an inflated price and have to pay extra, losing money.

Hedge funds are high-risk investment funds for wealthy individuals and institutional investors who speculate on movements in the financial markets.

The US government said Berger required initial investments of $250,000 to join a hedge fund that he boasted had hundreds of millions of dollars in assets and was profitable.

On Monday the prosecutors said the fund actually had assets of less than $50 million.

By September 1996, Berger had begun doctoring the financial records to conceal losses suffered by his fund, according to the prosecution.

Meanwhile, he continued to promote his short-selling strategy to investors, telling them that "economic momentum should deteriorate in 1998'', which would damage technology stocks along with brokerages and drug and consumer issues.

Almost a dozen law suits have been filed in Bermuda against Mr. Berger, the fund, Bank of Bermuda as its banker and its administrators. But all action has been halted as liquidators at KPMG complete their investigations.

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