Interesting iteration.
Investors seek to force Lisle-based hedge fund into bankruptcy
by Amy Lee
Mar 11, 2008
In an unusual case that could have wide-ranging implications for hedge fund investors, three investment companies have filed suit against Lisle-based Richie Capital Management LLC to recover invested funds by forcing one of Richies's funds into bankruptcy.
The petitioners – Benchmark Plus Partners LLC, Benchmark Plus Institutional Partners LLC and Sterling Low Volatility Fund QP – argue in court papers that they are now "former investors" in Richie Multi-Strategy Global Ltd., a failed hedge fund managed by Richie Capital Management. They argue Richie Capital’s failure to repay at least $45 million during the fund’s liquidation means they are now unsecured creditors.
The distinction is important because U.S. Bankruptcy code bars any entity other than creditors holding fixed, non-contingent claims from forcing an involuntary bankruptcy filing.
“There are several hundred million dollars of investor assets at stake, the fund is in liquidation and an independent investigation is long overdue,” according to the court filing, which was signed by Paul Possinger, one of two attorneys from the Chicago firm Winston & Strawn representing the three companies in the dispute. Calls to the firm for further comment went unreturned Wednesday.
U.S. Bankruptcy Judge Susan Sonderby will hear arguments regarding the involuntary bankruptcy petition at a 2 p.m. hearing today at the Dirksen federal courthouse in downtown Chicago.
The three companies argue Multi-Strategy’s reorganization included a botched plan to repay the investors, and that plan in effect transformed their status to creditors from investors, a characterization Richie Capital vehemently disputes.
“They are corporate entities who have invested in this fund. Our position is that they are still investors,” said Ronald Barlient, a former bankruptcy judge and partner at the Chicago law firm of Goldberg Kohn who represents Richie Capital.
“Our goal is to have the involuntary petition dismissed so that Richie can move forward and operate the fund as best it deems fit,” he stated.
The investment companies demand access to balance sheets and all other documents related to every entity Richie Capital Management operated in April 2007, when it sold most of the Multi-Strategy fund for $285 million. They argue Richie Capital has operated its liquidation in secrecy and “for its own benefit and to the likely wrongful detriment of the funds investors without any independent oversight,” according to court records.
The parties have agreed, however, to keep certain documents related to the fund’s investment and management strategy sealed. A hedge fund is a private investment pool that trades and invests in various assets, including securities, commodities and currency, on behalf of its clients, usually wealthy individuals or institutions.
Barlient, the former bankruptcy judge, characterized the filing as atypical for an involuntary bankruptcy filing.
“I’m not aware of other cases like this,” he said. “If the court would hold that investors have the right to put a fund into bankruptcy, that would be significant. But I don’t think that’s how it’s going to turn out.”
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