Delphi judge moves ahead in Appaloosa fraud case

Vindicator – A bankruptcy judge said Wednesday he may let Delphi pursue wider fraud claims against the Appaloosa Management hedge fund, which backed out of a deal to invest $2.55 billion in the auto supplier.

Appaloosa had led a group of investors to inject as much as $2.55 billion into Delphi in exchange for stock once it reorganized, but the investors withdrew from the deal in April. Delphi Corp. sued Appaloosa in May, accusing it of deliberately and secretly working to sabotage Delphi’s effort to satisfy a condition of their deal: that Delphi should raise $6.1 billion in exit financing to support its emergence from Chapter 11.

On Wednesday, lawyers for Appaloosa sought the right to improve its position in the lawsuit, but in doing so the hedge fund may have opened the door to wider charges.

Judge Robert Drain had ruled in July that Delphi could pursue a claim that Appaloosa had misrepresented its intentions. Delphi lawyers argued that Appaloosa manager David Tepper, a Goldman Sachs alum and well-known hedge fund manager, gave his verbal commitment to do the deal when he testified in December 2007. They described his testimony as a declaration that “a deal is a deal,” which to them meant that Appaloosa’s withdrawal constituted fraud.

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