Fletcher Sues to Block Cayman Liquidation of Hedge Fund

Fletcher International Ltd., a bankrupt hedge fund managed by the investment firm of Alphonse “Buddy” Fletcher, sued some of its own Cayman Islands-based funds to block liquidators from selling its assets.

The lawsuit, filed in U.S. Bankruptcy Court in Manhattan July 2, days after the fund’s own Chapter 11 bankruptcy, seeks to stop Ernst & Young, the official liquidators winding down related funds in the Cayman Islands. The liquidations come after three Louisiana pension funds sued to get their money back.

Fletcher has “been the target of a relentless legal assault as part of a coordinated scheme that has left two of its related funds in liquidation in the Cayman Islands and now threatens to drag the debtor itself into liquidation,” the company’s president, Floyd Saunders, said in a court filing.

The lawsuit seeks to block the funds, already in liquidation, from disrupting Fletcher International’s bankruptcy. Fletcher International has appealed the Cayman court’s April decision to appoint Ernst & Young to liquidate the funds, and expects its appeal to be heard July 31 or Aug. 1.

One of the Cayman funds in liquidation, Fletcher Income Arbitrage Fund, owns 83 percent of Fletcher International.

‘Illiquid Investments’

Fletcher International said the Cayman liquidators have “neither the time, nor the specific knowledge” of its assets to sell them in a way that will maximize value for creditors. The company’s current management team is uniquely situated to liquidate assets, which mostly consist of “long-term, illiquid investments” including lawsuits that have arisen from its complex financial positions, the company said in court papers.

The fund, founded in 1991, began trading debt and equity and is now a specialist in arbitrage, using “master funds” and “feeder funds,” according to court papers. Bermuda-based Fletcher International is the “master fund” in the structure.

A probe was opened into its financial statements by the Securities and Exchange Commission, according to a 2011 Wall Street Journal article. SEC spokesman John Nester declined to confirm the probe.

Fletcher International filed for bankruptcy protection in Manhattan on June 29, listing assets of about $52.5 million and liabilities of about $23.8 million. The numbers are uncertain, according to the bankruptcy filing, because there is no active trading market for some of the assets and some of the liabilities may be disputed.

Multiple Lawsuits

Alphonse Fletcher, a former Kidder Peabody & Co. equity trader, brought multiple lawsuits against his former employer in the 1990s. He won an arbitration proceeding accusing the brokerage of giving him just half the compensation he deserved when he left the firm, according to a 1994 Bloomberg News story. Fletcher, who is black, lost a lawsuit alleging racial discrimination, the Wall Street Journal reported in 1996.

Fletcher also has himself been sued for the sexual harassment of two men and lived with a male partner in New York’s famous Dakota building, which he also sued for racial bias, according to a June 2012 article by Bloomberg. The June article was about a lawsuit Fletcher’s wife, Ellen Pao, brought against venture-capital firm Kleiner Perkins Caufield & Byers for sex-discrimination.

The Dakota, where Alphonse Fletcher served as president from 2007 to 2009, was the home of John Lennon.

Alphonse Fletcher gained prominence on Wall Street in 2003 when his firm reported 300 percent-a-year returns, according to the Wall Street Journal, which first reported the bankruptcy of Fletcher International.

Credit Suisse

The hedge fund also claimed Credit Suisse Group AG (CSGN)’s securities units are refusing to return about $1.66 million belonging to Fletcher International. Credit Suisse withheld the money, claiming it’s to offset debts of Fletcher International and that other parties may claim rights to the hedge fund’s assets, according to the filing.

Credit Suisse, which has served as a counter-party in swap transactions and and prime broker for Fletcher International, ended its relationship with the company in June, according to court papers. Katherine Herring, a spokeswoman for Zurich-based Credit Suisse, declined to comment.

A Cayman Islands judge ordered the liquidation of two feeder funds, including the FIA Leveraged Fund, or FIAL, after the Firefighters’ Retirement System, the New Orleans Fire Fighters’ Pension & Relief Fund and the Municipal Employees’ Retirement System of Louisiana, who had bought $100 million of shares in FIAL in 2008, sought to have the investment returned.

The filing in Cayman Islands by the Louisiana pension funds in January, seeking to have the funds liquidated, was made after almost a year of negotiations over the redemption of the investments, according to the bankruptcy filing.

The case is Fletcher International Ltd. v. Fletcher Income Arbitrage Fund in Voluntary Liquidation. 12-01740. U.S. Bankruptcy Court Southern District of New York (Manhattan.) The bankruptcy is In re Fletcher International Ltd.,U.S. Bankruptcy Court; Southern District of New York (Manhattan).

To contact the reporters on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net; Tiffany Kary in New York at tkary@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.