Oh boy, these kinds of headlines are never good.

Two former Bear Stearns portfolio managers were arrested this week, not because they did a poor job of managing money. They were arrested because they misled investors in a few ways:

They told investors they personally had more money than they actually had in the fund (one of the two managers had removed $2 million of his own money when it appeared trouble was brewing).

In speaking with Barclays Bank (at the end of February 2007 – right after removing some personal money) “As you can see,” one of the managers wrote, “despite the sell off in the subprime mortgage market, our fund continues to do well, quite well, in fact.”

In April 2007 they expressed concerns privately in emails, but just days later, they held a conference call with investors, telling them there are “no serious long-term problems with their investments.”

I’m not going to speculate on the merits of the case. But this is a good opportunity to remind readers of one of the major differences between brokers and investment advisers: investment advisers carry a fiduciary obligation to their clients, brokers do not. An investment in a hedge fund, which is an unregulated investment portfolio, is definitely NOT like dealing with a traditional stockbroker and brokerage account (not even close).

But still, in this case, it appears there are brokerage firm employees possibly not disclosing some very relevant information. The way the story has been told through the media this week, it is difficult to say the money managers were on the same side of the table as the clients.

There is a good recap of the events you can check out at: Bloomberg.com’s website.