Hugh Culverhouse seeks class-action status on behalf of all investors who lost money in the hedge fund, according to a complaint filed today in federal court in Miami.
“Defendants breached their fiduciary duties by conducting a grossly negligent due diligence analysis of Sino-Forest’s business operations that did not analyze the substantial risks of holding a near-billion-dollar investment in a forestry company based in China,” Culverhouse said in his complaint.
Sino-Forest’s shares dropped more than 80 percent in June when Carson Block’s Muddy Waters LLC said the Hong Kong-based company overstated its timber holdings. Sino-Forest denied the allegations.
Paulson & Co., based in New York, told clients in a June letter that it lost C$462 million since the end of May on its Sino-Forest investment. The hedge fund had held 31 million shares of Sino-Forest in May, or 12.5 percent of outstanding stock, and had sold its entire stake as of June 17, according to the letter.
“The lawsuit filed by Hugh Culverhouse against Paulson & Co. is without merit,” the company said in a statement. “As in all our investments, Paulson has access to the same information that everyone else in the securities markets does. Like other public market investors, we must rely on audits and underwriter due diligence for comfort that financial statements and disclosures are accurate and reflect the true state of affairs at companies with publicly traded securities.”
Paulson said on a July 21 investor call that he would hire a specialist in Hong Kong after losses tied to Sino-Forest, two people briefed on the matter said that month.
The net realized loss on the investment since Paulson first bought Sino-Forest was C$105 million, according to today’s company statement.
The case is Culverhouse v. Paulson & Co., 12-cf-20695, U.S. District Court, Southern District of Florida (Miami).