A limited partner in a failed hedge fund run by Bear Stearns says the investment bank took only meager steps to prevent the fund's recent collapse.

New York-based investment firm Navigator Capital Partners LP made the accusation this week in a lawsuit filed in New York state Supreme Court in Manhattan. The complaint names Bear Stearns Cos. Inc., its asset management division and the High-Grade Structured Credit Strategies hedge fund.

Bear Stearns said it plans a vigorous defense and called the lawsuit's allegations unjustified and without merit.

The plaintiff is an experienced investment firm and, as described in the fund's materials, this was a high risk, speculative investment vehicle, Bear Stearns said in a statement.

Navigator Capital, run by Steven Resnick, invested more than $700,000 in the hedge fund between August 2004 and mid-April 2005. The firm and other investors lost nearly the entire value of their investments, dropping millions of dollars, the lawsuit said.

Defendants failed to disclose to investors the significant challenges facing the partnership, and the meager steps they were taking to face those challenges, while at the same time reaping substantial fees, the lawsuit said.

Bear Stearns Asset Management, the hedge fund's general partner, made more than $13.3 million in 2006 from advisory fees and profit-sharing before the hedge fund's demise, according to the lawsuit.

Bear said in mid-July that two of its structured finance funds, the Bear Stearns High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund, had very little value.

The two funds made bad investments in bonds linked to subprime mortgages, an area where defaults have surged, and faced margin calls from banks and redemption requests from investors. Before their difficulty, the funds combined controlled assets of more than $20 billion.

Last month, the hedge funds filed petitions in U.S. Bankruptcy Court in Manhattan as they attempt to be liquidated in the Grand Court of the Cayman Islands, where they are registered. Early Thursday, U.S. Bankruptcy Judge Burton Lifland issued a preliminary injunction blocking legal action against the hedge funds.

While Bear Stearns cut its own exposure to risky subprime loans in early 2007, the hedge fund run by senior portfolio manager Ralph Cioffi continued to invest in securities backed by the mortgages despite rapidly deteriorating market conditions, Navigator Capital said in its complaint.

The fund started to struggle in February when its assets were marked down 14.4 percent. But due to hedging moves, the loss was only 0.8 percent, the lawsuit said. The fund reported additional losses in the following months.

From January 1 to April 1, limited partners contributed $14.25 million to the fund and withdrew $9.2 million. The fund held $925 million in investor capital and gross long positions of $9.7 billion through the end of March, according to the lawsuit.