Barclays Bank, a unit of the London-based Barclays plc, the UK's third- biggest bank, has sued Bear Stearns over losses caused by the collapse earlier this year of a hedge fund that invested in sub-prime mortgages. The complaint was filed on Wednesday 19 December in a Manhattan federal court.

The bank claims the New York-based securities firm hid negative financial information about the collapsed fund. Barclays says it was the "sole participating shareholder" of the fund. The collapse was "one of the most high-profile and shocking hedge fund failures in the last decade", says the complaint, which seeks unspecified damages.

The manager of the fund Ralph Cioffi left Bear Stearns last week, but US prosecutors are investigating whether he withdrew money from the fund. He is a defendant in the Barclays suit along with Matthew Tannin, a senior managing director at Bear Stearns Asset Management.

The suit alleges fraud, conspiracy and breach of fiduciary duty. It includes a February e-mail to Barclays in which Tannin is supposed to have said that the fund is "having our best month ever" and that its "hedges are working beautifully".

At this point, the fund was having "severe" liquidity problems, says Barclays. In March, the British bank made a second investment in the fund. But a Bear Stearns representative said the lawsuit was an attempt by Barclays to avoid taking responsibility for its own actions.

Bear Stearns says the fund shared portfolio data with Barclays. It says that the UK bank made its own assessments that did not anticipate what, in hindsight, turned out to be a historically difficult market.

But, says Barclays, Bear Stearns Asset Management had "long known" that the 'High-Grade Structured Credit Strategies Enhanced Leverage Master Fund' and its underlying assets were worth "far less" than their stated values and were at "great risk for further losses".

It claims Bear Stearns hid the fund's failing net asset value from Barclays and investors in related feeder funds. It also claims the firm used the fund as a way to "unload excessively risky or troubled assets" that couldn't be sold to other investors.

In May, the fund paid almost $500 million to buy large portions of the six riskiest classes of securities that Bear Stearns Asset Management controlled, while promising Barclays the fund wouldn't hold such securities, says the complaint.