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2008-06-13 — ft.com
A US hedge fund manager facing a lawsuit for blocking withdrawals is now being accused by one of its long-standing investors of “siphoning off†money.
Windmill Management, which runs the SageCrest and SageCrest II funds specialising in loans for art, property, and personal injury lawsuits, was sued this week by Westerly Capital on behalf of other investors in its first fund.
The case is unusual in the world of hedge funds, where claims of deliberate wrongdoing by managers are usually picked up first by regulators. Investors are often reluctant to reveal their losses in public for fear of embarrassment, keeping them out of the courts.
More about the fund and the situation it is in:
The first SageCrest fund is relatively small, and the lawsuit is likely to be more of an annoyance to Windmill at a time when it is struggling with an almost halving of the value of the second fund, which reached almost $1bn under management last year.
But it could prompt further concerns among investors in the larger fund, many of whom have already complained about a block on withdrawals and big falls in value. Last month Wood Creek Capital Management, a US fund of hedge funds, sued Windmill for $5.8m it claimed had been promised in repayment but had never arrived. The fund was also pulled into a tangle of legal actions in New York over loans to buy art where Christie’s accused a gallery of trying to rig an auction.
SageCrest II has sold many of its assets at a steep discount to raise cash partially to repay loans from Deutsche Bank and Bear Stearns, and has been trying to secure a $150m emergency loan from fund manager Fortress Investment Group.
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