Paulson Fund Investor Case Dismissed for Lack of Standing

An investor’s lawsuit against John Paulson’s $23 billion hedge fund over its reported loss of about $460 million in Sino-Forest Corp was dismissed by a federal judge.

U.S. District Judge Marcia Cooke in Miami threw out the case saying the investor didn’t have the legal right to sue, according to an order filed March 29.

“The plaintiff lacks standing to bring the instant litigation and claim a fiduciary relationship with the defendants,” Cooke wrote.

Hugh Culverhouse in a February 2012 complaint sought class- action status on behalf of all investors who lost money in the fund.

Paulson & Co., based in New York, told clients in a June 2011 letter that it lost the money since the end of May on its Sino-Forest investment. The hedge fund held 31 million shares of Sino-Forest in May of that year, or 13 percent of outstanding stock, and sold its entire stake by June 17, according to the letter.

Sino-Forest’s shares dropped more than 80 percent when Carson Block’s Muddy Waters LLC said the Hong Kong-based company overstated its timber holdings. Sino-Forest denied the allegations.

“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.

Culverhouse’s lawyers, Harvey Gurland and Felice Schonfeld of Duane Morris LLP didn’t immediately respond to an e-mail seeking comment on the ruling.

“We have stated from the outset that this suit was completely without merit and that there was no basis in law or fact for the action,” Dawn Dover, a spokeswoman for Paulson at Kest and Co., said by e-mail.

The case is Culverhouse v. Paulson & Co., 12-cv-20695, U.S. District Court, Southern District of Florida (Miami).

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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