Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Times Online – A group of banks that financed the £450 million leveraged buy-out (LBO) of car wash group IMO will take control of the struggling business leaving a rival group of hedge fund investors with nothing.
In a High Court decision that lawyers say will damage hedge funds’ interests in dozens of ailing private equity deals, a judge awarded 100 per cent of IMO’s equity to the banks, led by HBOS.
The hedge funds, which also lent money to back the 2006 buy-out, argued that they were entitled to some equity in the business, which is being restructured after defaulting on its debts in March.
SF Gate – There probably won’t be many tears for Larkspur’s Copper River Management LLC. The $1 billion hedge fund’s partiality to short selling earned it obloquy, lawsuits and, ultimately, death.
No trace of company personnel could be found for comment Wednesday, after the Wall Street Journal reported that the fund is "liquidating and returning funds to investors." The only sign of life was a forlorn logo on the company’s Web site. The cause of demise? Some observers predicted it after the company, formerly known as Rocker Partners, got caught on the wrong side of derivative trades with the going-bankrupt Lehman Bros. Others pronounced the patient terminal when the feds banned short selling of financial stocks in September.
Chicago Tribune – The Citadel Investment Group will shutter its Tokyo offices and cut 37 jobs from its Asian operations.
The Chicago-based hedge fund will still have a presence in Hong Kong, where 25 positions will be cut, the company said Monday. The investment firm founded by billionaire Ken Griffin in 1990 will maintain 25 to 30 staffers in Hong Kong. A regional group that invested in companies undergoing mergers, asset sales or lawsuits will be cut.
Citadel’s decision comes after its two primary funds reported losses of 47 percent through November. The firm manages $16 billion in assets.
New York (HedgeCo.Net) – The hedge fund formerly run by the late Michael Klein has been sued by two individuals who owned a mortgage lending business in which the fund had a stake.
John and Kitty Gaiser are suing California-based Pacificor after the fund allegedly “misused a position of trust and control in order to attempt to take control of and acquire – without compensation – John and Kitty Gaiser’s ownership of Quality Home Loans,” according to a statement made by the Gaiser’s legal team. According to the Gaisers, Quality Home Loans filed for Chapter 11 bankruptcy protection, at which time the hedge fund acquired the business.
“It is our hope that this lawsuit will rectify the massive damage done to the Gaisers by the named defendants,” said their lawyer John Edgar. “We will look forward to proving these damages at trial.”
Pacificor is finding themselves in the middle of several lawsuits ever since Klein and his daughter were killed in plane crash last December over a Panama forest. The Sorenson Trust and Relief Return International, who had $24 million tied up in the hedge fund, is suing over a promise that Klein allegedly made before his death.
According to the company, Klein made a verbal promise to the company, saying they could still withdraw their investment if given notice by December 31, 2007. When they moved to withdraw $14 million from the fund and redeem $10 million in stock on December 27th, they were denied by Pacificor after the fund stated they had no knowledge of the promise made by Klein.
In addition to the suit, Klein’s estate is also being sued by his ex-wife over their daughter’s death and by the family of the daughter’s friend, who was the only survivor of the crash.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) – South Florida-based hedge fund Palm Beach Finance Partners LP says it lost more than $1 billion to the company run by famed fraudster Tom Petters.
Petters headed Minnesota-based Palm Beach Finance Holdings Inc. before being charged in September with money laudering, obstruction of justice and mail and wire fraud that were used to fund his extravagant south florida lifestyle.
Petters allegedly masterminded a scheme that bilked over $3 billion out of trusting investors by setting up fake companies in which he supposedly was invested in. Petters has been slammed with lawsuits in recent months, forcing a judge to freeze any further lawsuits until things can be sorted out.
According to the Palm Beach Post, five investors in Palm Beach Finance Partners have appointed New York law firm Sadis & Goldberg to probe deeper into whether the hedge fund properly managed their funds and whether or not the highly recommended due diligence was performed.
Petters, who currently resides in a Minnesota jail far from his $9 million oceanfront mansion, insists he is innocent. He currently has over 30 civil suits pending against him.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York Post – As the Securities and Exchange Commission continues its assault on short sellers, hedge funds are discussing legal action to challenge Chairman Chris Cox’s recent moves – just as funds in the UK are considering lawsuits against their government regulator.
Since Friday, Cox has enacted a hodgepodge of emergency rules in an effort to give struggling Wall Street firms time to recover from their recent battering, including a widespread ban on shorting of financial stocks, and requiring hedge funds to disclose what they short.
That has prompted debate in the hedge fund world about what, if anything, might be done to temper efforts they say hurts good players along with the bad. Talk of legal action is still in the discussion stage, and no lawsuit may emerge.
"There are just a lot of questions right now," said an industry insider.
New York Post – The developers of the famed landmark are fighting back following two multimillion-dollar lawsuits filed against them by separate penthouse buyers within the past two weeks.
Developer El-Ad Properties, which renovated the 101-year-old building to include pricey condos, is countersuing Russian hedge-fund manager Andrei Vavilov for damages totaling $36 million after he claimed he was the victim of a bait-and-switch.
Vavilov, 51, who bought adjoining duplex and triplex apartments for $53.5 million, filed a lawsuit against El-Ad and Stribling & Associates brokers for $30 million plus return of his $10.7 million deposit.
On Wednesday, the buyer of a duplex next to Vavilov’s two units – also said to be a hedge-fund manager – filed a similar suit, for $6.5 million.
In the countersuit filed in Manhattan Supreme Court, El-Ad accuses Vavilov of libel and filing a "sham lawsuit."
Bloomberg – The brother of former Bayou Group LLC finance chief Daniel Marino, who is serving 20 years in prison, pleaded guilty to a federal charge that he helped conceal a $400 million fraud at the bankrupt hedge-fund firm.
Matthew Marino entered his guilty plea yesterday in U.S. District Court in White Plains, New York, federal prosecutors said. Marino faces as long as three years in prison when he’s sentenced on Dec. 4, according to prosecutors.
Marino admitted “that he knew a fraud was being perpetrated on Bayou investors,” U.S. Attorney Michael Garcia said yesterday in a statement.
Daniel Marino was sentenced in January to 20 years in prison for defrauding investors. Bayou co-founder Samuel Israel is serving a 20-year prison term.
Bayou, based in Stamford, Connecticut, was among the biggest hedge-fund firms to come under federal scrutiny for missing money. Bayou filed for bankruptcy in May 2006, prompting lawsuits claiming it operated a Ponzi scheme that paid off old investors with money from new ones.
Defense attorney Eugene Riccio said yesterday in a phone interview that Matthew Marino pleaded guilty to misprision of a felony for failing to report the crime. Marino faces as long as 27 months in prison under federal sentencing guidelines, Riccio said. He declined to comment further.
New York Post – Hedge fund executive Hunter Biden has had anything but a quiet introduction to his career in finance.
The 38-year-old son of Democratic vice presidential candidate Sen. Joe Biden is caught up in several lawsuits regarding the acquisition and operation of Paradigm Companies, an investment firm that operates a fund of funds – a hedge fund that invests in other hedge funds.
Biden also appears to be feuding with partner James Park, the son-in-law of the Rev. Sun Myoung Moon, Court papers show.
Biden, also a Washington lobbyist, took control of Paradigm in August 2006 and was, for a brief period, its president – getting paid $1.2 million a year despite no experience in the sector, according to charges in one of the suits.
Months later, Anthony Lotito, a consultant, sued Biden, James Biden, his uncle, and Paradigm for allegedly cheating Lotito out of fees related to the purchase. Biden has denied the charges and the suit is awaiting trial.
Hedge fund executive Hunter Biden has had anything but a quiet introduction to his career in finance.
The 38-year-old son of Democratic vice presidential candidate Sen. Joe Biden is caught up in several lawsuits regarding the acquisition and operation of Paradigm Companies, an investment firm that operates a fund of funds – a hedge fund that invests in other hedge funds.
Biden also appears to be feuding with partner James Park, the son-in-law of the Rev. Sun Myoung Moon, Court papers show.
Biden, also a Washington lobbyist, took control of Paradigm in August 2006 and was, for a brief period, its president – getting paid $1.2 million a year despite no experience in the sector, according to charges in one of the suits.
Months later, Anthony Lotito, a consultant, sued Biden, James Biden, his uncle, and Paradigm for allegedly cheating Lotito out of fees related to the purchase. Biden has denied the charges and the suit is awaiting trial.
Washington Post – A son and a brother of Sen. Joseph R. Biden Jr. (D-Del.) are accused in two lawsuits of defrauding a former business partner and an investor of millions of dollars in a hedge fund deal that went sour, court records show.
The Democratic vice presidential candidate’s son Hunter, 38, and brother James, 59, assert instead that their former partner defrauded them by misrepresenting his experience in the hedge fund industry and recommending that they hire a lawyer with felony convictions.
The legal actions have been playing out in New York State Supreme Court since 2007, and they focus on Hunter and James Biden’s involvement in Paradigm Companies LLC, a hedge fund group. Hunter Biden, a Washington lobbyist, briefly served as president of the firm.
A lawsuit filed by their former partner Anthony Lotito Jr. asserts in court papers that the deal was crafted to get Hunter Biden out of lobbying because his father was concerned about the impact it would have on his bid for the White House. Biden was running for the Democratic nomination at the time the suit was filed.
