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

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Tags: assurances, chief-executive, coast-business, court-decision, due-diligence-service, federal-deposit-insurance-corp, fn, news-briefing, plane-crash, stalking-horse-bidder, unions, withdrawal-policy

FT – Reuters – Fortress Investment Group LLC, one of the few publicly traded managers of private equity and hedge funds, is taking action to keep two of its companies afloat, the Financial Times said, quoting people familiar with the situation.

Fortress is struggling to preserve the value of its investments in Intrawest, a ski resort company based in Canada that has $1.68 billion in debt due on October 23, and Gagfah, a German residential real estate group that is seeking to raise additional equity to comply with the terms of its debt, the paper reported on its Website.

People familiar with Fortress say there is a low probability Intrawest will file for Chapter 11 bankruptcy protection, the Financial Times said.

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CFO.com – Even hedge funds are not immune to the credit crunch. A small hedge fund that provided short-term debt to companies has filed for Chapter 11 bankruptcy protection.

Greenwich, Connecticut-based SageCrest Finance, managed by Windmill Management, said in its Chapter 11 petition filed in U.S. bankruptcy court that it had listed assets of $50 million to $100 million, and debt between $1 million and $10 million, reported Reuters. The fund had about $1 billion in assets under management as recently as a year ago, according to hedgefund.net.

In fact, the website points out that the credit crunch put the squeeze on SageCrest’s business strategy — which is providing asset-backed specialty financing to smaller private companies that have been closed out of traditional sources of capital. Many of its projects involved extending art-, real estate-, and structured settlement-based loans.

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