Jan. 31 (Bloomberg) -- R. Hunter Biden, a Washington lobbyist, fraudulently excluded a partner from the purchase of a hedge-fund investment firm, the partner claims in a lawsuit.

Biden and his uncle James Biden squeezed investment consultant Anthony Lotito Jr. out of the 2006 acquisition of New York-based Paradigm Cos., Lotito says in a complaint filed Jan. 5 in New York state court. The Bidens lied to Lotito about their joint offer while negotiating a better deal alone, Lotito's complaint says. The Bidens deny the claims.

``He wants back what was stolen from him,'' said Lotito's lawyer, Brian Wille of Kostelanetz & Fink LLP in New York. ``He entered into this transaction believing in the honesty and integrity of the Bidens.''

Hunter Biden, 36, son of U.S. Senator Joseph Biden, stepped down this month from daily oversight of Paradigm Global Advisors LLC, a unit of Paradigm Cos. that manages investments in hedge funds. He became the firm's chairman and remains a lobbyist, an unusual dual role as scrutiny of the hedge-fund industry has increased.

The Bidens have not yet filed a response to Lotito's complaint. Their attorney, Vincent Syracuse of Tannenbaum Helpern Syracuse & Hirschtritt LLP in New York, e-mailed a statement denying Lotito's allegations.

`Unhappy Business Relationship'

``Before Mr. Lotito brought this lawsuit, he made an agreement with Hunter and James Biden severing what had become an unhappy business relationship with them,'' according to the statement. ``He acknowledged the existence of disputes with Hunter and James Biden, as well as his belief that it was in the best interests of the parties for him to transfer his partnership interests to them.''

James Biden, 57, is the brother of Senator Biden and majority owner of Paradigm with Hunter Biden. He's not involved in the firm's management, Hunter Biden said in an interview earlier this month. Both referred questions to attorneys.

Lotito declined to comment through Wille.

Paradigm was founded in 1991 and has about $500 million of clients' money farmed out to hedge funds.

Lotito, 49, introduced Hunter Biden to Paradigm executives in January 2006 after Senator Biden said he was concerned that his son's lobbying might affect a planned presidential campaign, Lotito said in his complaint. Under the original purchase that included Lotito, Hunter Biden was to be paid $1.2 million a year as Paradigm's president and chief executive officer, according to the complaint.

Corporate, Political Experience

Biden is founder and partner of Washington-based lobbying firm Oldaker, Biden & Belair LLP. A graduate of Yale Law School in New Haven, Connecticut, he previously was a senior vice president at credit-card issuer MBNA Corp. before he was named a director for e-commerce policy issues in the U.S. Department of Commerce under President Bill Clinton, according to Paradigm fund documents given to investors.

Lotito's lawsuit is timed to take advantage of publicity surrounding Senator Biden's planned presidential campaign, according to the statement from Syracuse. Senator Biden's office didn't return calls and e-mails seeking comment.

In an interview Jan. 11, Hunter Biden said he never intended to stop lobbying or to be permanent CEO of Paradigm. As an owner who no longer is an executive, he's paid through the firm's profits and doesn't draw a salary, he said.

Lotito, Hunter Biden and James Biden formed a partnership last year, Washington-based LBB Holdings USA LLC, which on May 2 agreed to merge with Paradigm, according to Lotito's complaint. LBB paid $330,000 as an initial payment in what was to be a $21.3 million deal, he says.

Pension Fund Marketing

Most of the funding was to come from third-party investors recruited by LBB, with an Oct. 31 deadline to close the transaction, the complaint says.

James Biden and Lotito planned to work as consultants to LBB and would be paid $25,000 a month to find financing for the Paradigm acquisition, according to Lotito's complaint. In addition, they would work to attract public pension funds to invest in Paradigm and would split half of the management fees earned from those clients, according to an agreement with Paradigm Cos.

Prospective pension-fund clients included New York City Employees' Retirement System, New Orleans Fire Fighters Association and the Illinois Public Pension Fund Association, according to the complaint.

Between May and July, Hunter and James Biden rejected proposed third-party investors as not ``suitable,'' according to the complaint. The Bidens offered to buy Lotito's one-third interest in LBB holdings for $1 million, he says in the complaint. Lotito refused.

Partners Split

He ended up selling his interest in LBB to his partners in September for $250,000, his complaint says. The Bidens told Lotito that LBB had ``substantial liabilities'' and that the settlement would absolve him of those, the complaint says.

Lotito says he didn't know that on Aug. 11 the Bidens had agreed to take over Paradigm for an $8.1 million promissory note, or guarantee of payment. The majority of the sale proceeds went to James Park, the firm's founder, according to the complaint.

Park, who isn't a defendant in the lawsuit, didn't return calls seeking comment. He works as an investment consultant with Paradigm.

Lotito says that the Bidens, as his partners in LBB, were obligated to tell him that they were making a competing bid for Paradigm but did not do so. He also accuses Paradigm entities formerly controlled by Park of failing to inform LBB's general counsel of the offer excluding Lotito.

$100 Million Sought

Lotito is asking the court to void the settlement he reached with the Bidens and is seeking at least $100 million. He claims fraud and breach of fiduciary duty against them.

He's also suing Paradigm entities involved in the transaction. Defendants include BGPC Advisors LLC, which is controlled by Hunter and James Biden and wholly owns Paradigm Global Advisors LLC. Paradigm Global Advisors is not a defendant in the complaint.

The case is Lotito v. Biden, 07/600045, New York State Supreme Court (Manhattan).

To contact the reporters on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net; Thom Weidlich in New York at tweidlich@bloomberg.net.

Last Updated: January 31, 2007 12:40 EST