An Austrian national Michael Berger that was pleaded guilty to charges of securities fraud in a Manhattan court in 2000 connected with his Internet stock market deals and went fugitive in March 2002, last week was cought in Austria. Before that, for several years he was sought by the U.S. Federal Bureau of Investigation (FBI).
Michael Berger launched a hedge fund known as Manhattan Investment Fund (MIF), in 1995. It was incorporated under the law of the British Virgin Islands (BVI). Initially being an open end investment company; MIF started trading in 1996, selling securities of overvalued US technology companies.
The BVI-based fund suffered enormous losses between 1996 and 1999, when Berger bet against technology and Internet stocks. The fund got broke in January 2000, just two months before the Internet stockmarket bubble did burst in March 2000.
Berger was the investment manager and advisor for MIF, through his wholly owned New York company Manhattan Capital Management, while all of MIF’s assets were held in custody in New York by Bear Stearns.
Bear Stearns informed that Berger began losing money already when the BVI fund started its operations, however its monthly account statements demonstrated profits, and made the performance look much better than it actually was. Probably, Berger was operating a ‘Ponzi scheme’, where assets of new investors were used to conceal MIF’s mounting losses. Meanwhile, through the end of 1999, Berger collected more than $575 million from investors to its BVI fund. In early 2000, Berger admitted the fraud.
He started to deny his plea a year later; however, his motion was rejected by the judge. Berger was free on bail during all that time, but he did not show up at a court hearing on March 1, 2002. Since that time, he has been on the run.
Berger’s fraud with BVI-registered Manhattan Investment Fund is one of the most well- known frauds with hedge funds, partly because it was one of the first reported so widely. Berger had bet against technology stocks about three years. Being an Austrian national, Berger cannot be extradited to the U.S., where he would face up to 10 years in jail and fines of at least $1.25 million, plus restitution.