Fletcher International Ltd., a bankrupt hedge fund managed by the investment firm of Alphonse “Buddy” Fletcher, will have a trustee oversee its bankruptcy, against the wishes of its parent company.
U.S. Bankruptcy Judge Robert Gerber, in a written order entered in Manhattan today, approved the company’s motion to appoint a Chapter 11 trustee after a hearing on Sept. 5.
Fletcher Asset Management Inc., the investment manager and parent of the company, had objected, saying that an examiner would be better to resolve a dispute in the case than a federal trustee.
“It is in the best interest of creditors, equity security holders and other parties in interest of the estate that a Chapter 11 trustee be appointed,” Gerber wrote, overruling the objection.
Other units of the company joined Fletcher International in its request for the trustee, the judge said.
Fletcher International filed for bankruptcy protection 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.
Days after the filing, the company sued some of its own Cayman Islands-based funds to block liquidators from selling their assets.
In that lawsuit the company seeks to stop Ernst & Young, the official liquidator, from winding down related funds in the Cayman Islands. The liquidations come after three Louisiana pension funds sued to get their money back.
Fletcher International said a trustee is needed because the company has been “mired in litigation” over control and assets with two of its funds, FIA Leveraged Fund and Fletcher Income Arbitrage Fund Ltd. Settlement talks have failed and “additional costly litigation” is inevitable, lawyers for Fletcher International wrote.
Fletcher Asset Management said in its objection that a better alternative would be to appoint an examiner who would look into whether there is value in the estate or whether, as liquidators and Louisiana pension funds assert, the real value lies in suing the fund’s management.
The liquidators and the Louisiana funds contend that they are owed more than $154 million, according to court papers.
Fletcher Income Arbitrage Fund, a Cayman Islands-based fund already in liquidation, owns 83 percent of Fletcher International. Fletcher International has sought to block its liquidation, saying it could disrupt the bankruptcy.
Bermuda-based Fletcher International is the “master fund” in the structure. Founded in 1991, it began trading debt and equity and became a specialist in arbitrage, using “master funds” and “feeder funds,” according to court papers.
Alphonse Fletcher gained prominence on Wall Street in 2003 when his firm reported 300 percent-a-year returns, according to the Wall Street Journal. A former Kidder Peabody & Co. equity trader, he brought multiple lawsuits against his former employer in the 1990s.
A Cayman Islands judge ordered the liquidation of two feeder funds, including the FIA Leveraged Fund, 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 in January to have their investment returned.
To contact the reporter on this story: Tiffany Kary in New York at firstname.lastname@example.org.