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

Bloomberg – Money manager John Paulson has started buying beaten-up mortgage bonds as hedge funds stumbled for a fifth straight month.

Paulson, 52, is purchasing debt backed by home loans after generating sixfold returns last year with help from bets against subprime mortgages, investors in his funds said. Paulson’s Advantage Plus fund rose 29 percent this year through October, while the Eurekahedge Hedge Fund Index, which tracks more than 2,000 funds that invest globally, dropped about 12 percent.

“Paulson’s timing is typically very good,” said Louis Gargour, chief investment officer of LNG Capital LLP, a London- based hedge fund that invests in distressed credit markets.

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New York (HedgeCo.Net) – Citigroup Inc. has purchased Wachovia’s banking operations at a price tag of $2.16 billion, or roughly $1 a share, after losses stemming from bad mortgages rendered a resurfacing nearly impossible.  Citigroup will now have around 4,300 branches and offices and will surpass JPMorgan Chase as the largest U.S. bank by deposits. 

Treasury Secretary Henry Paulson was pleased with the purchase, and said that a failure of Wachovia “would have posed a systemic risk" to our country’s financial system.

Wachovia is yet another casualty of the credit crisis and has suffered over $42 billion in losses from the subprime fallout.  As the largest lender of adjustable-rate mortgages, Wachovia saw its shares plunge amidst a record number of defaults on home loans, particularly in Florida and California.  The ARM’s offered low “teaser” introductory rates, luring subprime candidates.  Many borrowers ended up owing more than what their home was actually worth. 

Citigroup will absorb the bank’s losses, while trying to raise an additional $10 billion to pay off Wachovia’s senior and subordinated debt.  Charlotte-based Wachovia will retain its Evergreen Asset Management unit, along with its retail brokerage unit, which oversees over $1 trillion in capital. 

The purchase will help change the once gloomy outlook for Citigroup, who at one point this year, thought they might collapse themselves after writing down over $46 billion and being one of the hardest hit banks of the housing crisis.  Citigroup posted losses in three consecutive quarters, but now says it plans on reducing expenses b more than $3 billion annually.

Citigroup CEO Vikram Pandit has assured investors that he is working closely with Wachovia CEO Bob Steel in an effort to make the transition with “precision” and “speed.” 

The deal will no doubt help shed a more positive light on Pandit, after a period of bad press involving the now collapsed hedge fund he founded and eventually sold to Citigroup.  The bank, after paying $800 his Old Lane Hedge Fund, $165 million of which went directly into Pandit’s pocket, decided to close up shop this summer after suffering unsustainable losses.

The merger will give Citigroup an almost 10 percent share of the U.S. banking market, with deposits globally exceeding $1.3 trillion.    

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
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Montreal Gazette- IndyMac Bank is under investigation by the FBI for possible fraud involving home loans made to risky borrowers, the Associated Press reported yesterday, citing an unnamed law enforcement official.

The report said it was not immediately clear how long the FBI’s probe of the bank has been ongoing but the probe is focused on the company and not individuals who ran the thrift institution.

U.S. banking regulators seized mortgage lender IndyMac Friday after withdrawals by panicked depositors led to the third-largest banking failure in U.S. history.

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