NEW YORK (HedgeWorld.com)–Faced with two competing plans on how to revalue remaining assets in the Lipper convertible arbitrage fund, New York State Supreme Court Judge Karla Moskowitz decided on an intermediate solution that gives investors some of the money back.
They will receive about US$230 million of the total US$360 million in the fund. This amount will be distributed so that each investor gets 75% of the lower of the two estimates within 30 days. The judge will decide in the meantime how to divide the rest of the money.
The unresolved issue is how far back to go in re-pricing the assets. Kenneth Lipper had proposed to revalue going back six years, based on an investigation by accounting firm BDO Seidman. This suggests that the problems revealed in public last year were of much longer duration and had started in 1995.
According to Mr. Lipper, who wanted to return money sooner rather than later, the average investor would receive 83% of their original investment under his plan. But a group of investors proposed an alternative that limits re-pricing to 2001, when the loss was recognized.
These appear to be early investors in the fund, including Mr. Lipper’s former wife, whose claims shrink considerably when assets are re-valued back to 1995. More recent investors, by contrast, favor the Lipper plan, which has majority support. A Lipper spokesman said it is not always clear why each investor backs a particular plan.
Mr. Lipper blames former portfolio manager Edward Strafaci for the improper valuations that concealed a large loss. Mr. Strafaci has rejected the charge. Since resigning from the Lipper firm he started his own hedge fund, Stratos Capital Management.