Billionaire Leon Cooperman Has Cash Stuck In Controversial Hedge Fund
Nathan Vardi, Forbes Staff
Following the money trail
11/30/2010 @ 1:48PM
I spend most of my time digging into Wall Street, hedge funds and private equity firms, looking for both the good and the bad. I also focus on the intersection of business and the law. I have worked at Forbes since 2000, where I have helped expose everything from hedge fund scams to LBO home runs, Yasser Arafat’s corruption and the liquidity crisis at Harvard University’s endowment.
A fund of hedge funds connected to billionaire investor Leon Cooperman claims it has some of its money stuck in a Connecticut hedge fund that was recently sued by the Securities & Exchange Commission and the Connecticut Attorney General.
Pine Street Associates, a fund of hedge funds that is managed by a group that includes Cooperman and is headquartered in the same Manhattan offices as Cooperman’s Omega Advisors hedge fund, sued Southridge Capital Management last week in Manhattan’s New York state court to confirm an arbitration award regarding an $8 million redemption request.
According to its lawsuit, Pine Street Associates, which was founded in 1994 and manages some $140 million, made a redemption request for its entire investment in Southridge in October 2008. A few months later, in April 2009, Pine Street Associates filed an arbitration demand against Southridge, according to its lawsuit. After the arbitration demand was filed, Southridge paid Pine Street a partial redemption of $88,797, leaving more than $7.9 million in limbo, a court filing says.
In January 2010 the sitting arbitrator hearing the dispute, John Byrne, ordered that within 90 days Southridge, which is headed by Stephen Hicks, needed to complete the redemption of Pine Street’s interest in Southridge, plus interest, in cash or in kind. Byrne also ruled that Southridge needed to provide Pine Street with an accounting of Pine Street’s interest in Southridge.
In a statement, Southridge says that Pine Street redeemed several million dollars before October 2008 and another $3 million after the arbitration and a significant amount of stock, adding that the dispute had been resolved through arbitration. “Mr. Hicks refused to pay Mr. Cooperman what he demanded out of the funds held for other investors, and that refusal evidently caused Cooperman, in retribution, to continue this matter in the courts notwithstanding that it was already resolved in arbitration,” Southridge says in a statement.
Cooperman and Pine Street Associates declined to comment.
The redemption dispute between Pine Street and Southridge is the latest development in a struggle that appears to have gone on for years between Southridge and its investors, eventually leading to the involvement of state banking and federal securities regulators.
In October the SEC sued Southridge Capital Management and its manager, Hicks, accusing them of committing fraud in valuing portfolio assets, making misrepresentations to investors and misusing investor assets. At the same time, Connecticut Attorney General Richard Blumenthal also sued Hicks and Southridge for allegedly collecting more than $26 million in fees after lying to investors and overvaluing assets.
Hicks and Southridge, which is based in Ridgefield, Conn., denied the accusations.
The SEC and Connecticut regulators claim that many of the investors in the Southridge hedge funds had made redemption requests in recent years, but that Southridge had simply not honored them. The SEC said that to raise money Southridge originally told investors it would invest in liquid securities, but later told investors it was having difficulty meeting redemption requests because funds had been placed in illiquid securities.
“Neither Southridge nor Stephen Hicks has committed fraud or engaged in violations of the securities law, and both Mr. Hicks and Southridge categorically deny any wrongdoing,” Southridge’s lawyer, Robert Wolf, said in a statement. “The SEC and Connecticut Attorney General’s Office have focused on a handful of positions in the structured finance segment of Southridge’s business, ignoring over 250 Southridge fund investments totaling in excess of $1 billion.”
http://www.forbes.com/sites/nathanvardi/2010/11/30/billionaire-leon-cooperman-has-cash-stuck-in-controversial-hedge-fund/ |
