NEW YORK, NY March 24, 2008 —Manhattan District Attorney Robert Morgenthau says that he believes off-shore banking by hedge funds leaves investors and the public increasingly vulnerable. WNYC's Bob Hennelly has more.

Morgenthau says there is $1.9 trillion on deposit in the Cayman Islands beyond U.S. legal jurisdiction compared to just $400 billion on deposit in New York. A Cayman Islands promotional Web site contends it is home to 8,000 hedge funds.

MORGENTHAU: The whole Bear Stearns thing began to unwind when two hedge funds owned and operated by Bear Stearns went bankrupt in the Caymans. And one of the reasons they went bankrupt was that there was no supervision of any kind.

REPORTER: The DA's office says it is not investigating Bear Stearns. But law enforcement sources confirm there is a Federal criminal probe into the bank's off-shore hedge funds that failed last summer. Bear Stearns did not return a call for comment. For WNYC I am Bob Hennelly.