business

Ken Lipper's Liquidation Blues

A court hearing to come up with a plan to return what's left of the arbitrage fund's cash to investors reveals new big-name clients

Kenneth Lipper, the beleaguered money manager who allegedly lost over $315 million of his client's money, had his first day in court on Jan. 7 -- actually, Lipper's team of lawyers did. Lipper himself, an Academy-award winning film producer and a former New York City deputy mayor, didn't show up at New York State Supreme Court in Manhattan. No matter. Irate investors and their attorneys made the courtroom scene almost as interesting as if Lipper had been there himself.

Many were there to dispute the distribution plan Lipper has set up for his clients for the liquidation of Lipper Convertibles LP, the covertible arbitrage hedge fund that lost some 44% of its value in 2001 rather than the 8% gain Lipper & Co. reported near the end of 2000 (see BW Cover Story, 12/9/02, "The Fallen Financier"). The plan is being hotly contested since investors who entered the fund more recently are receiving more of their money back compared to earlier investors.

HIGH PROFILES.

  So far, about 65% of Lipper's clients have agreed to his proposed distribution plan. They include many names that haven't previously been made public, such as Today Show host Matt Lauer; the actors Liam Neeson and Julia Roberts; Paul A. Volcker, former Federal Reserve Board chairman; Dr. Penny W. Budoff, menopause expert and author; Binette Lipper, a Lipper relative; Fund for the City of New York; Peter Morton, co-founder of the Hard Rock Café restaurant chain; Hollywood film producer Jerry Bruckheimer; artist Frank Stella, on behalf of the Barnett & Annalee Newman Foundation; and Jacob and Hilda Blaustein, the founding family of American Oil Co. (Amoco).

Various entities of the Tisch family (which controls Loews Corp.) as well as George Washington University became limited partners in 2001 and make up a large percentage of the partnership, say sources. They're also in favor of Lipper's proposed distribution plan. "Their hit is very, very little. They want to get this thing over, get their money, and get out," says an insider. But other investors -- including members of the Lipper family -- don't agree with Lipper's own plan.

Much of the debate over the distribution proposal stems from a report that accounting firm BDO Seidman put out in early October, 2002. Seidman concluded that the portfolio had been mispriced since 1995, although Lipper's letters to investors beginning in February, 2002, clearly stated that the losses were only for the year of 2001. For that reason, some investors want the distribution plan to be based on numbers that PricewaterhouseCoopers, Lipper's longtime auditor, reported in March, 2002, the end of the accounting period in which the fund was found to be mispriced, rather than the Seidman numbers.

"BRILLIANT MANEUVER."

  Other investors want to use a third set of numbers based on an agreed-upon methodology. "Basically, everyone is just jockeying to get as much money back as they possible can," says one investor. "It's a brilliant manuever, because it takes the spotlight off Lipper himself and questions of fraud."

At the Jan. 7 hearing, Judge Karla Moskowitz ruled that a preliminary measure be taken and that investors receive within 30 days 75% of the lower number of either the Seidman or PwC reports. Lippers lawyers are in favor of Moskowitz' ruling.

Still, other issues remain, some of which were raised at today's hearing: whether or not Lipper should be removed as liquidating trustee and whether or not he should be forced to return at least a portion of the fees he collected on allegedly inflated performance figures. "Lipper is rewriting the portion of history that allows him to hurt investors yet keep his ill-gotten gains," says Mark Ressler, a lawyer for several of Lipper's investors.

Try as he might to avoid the spotlight, Ken Lipper seems bound to remain in a harsh glare for a while.

By Marcia Vickers in New York

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