WILMINGTON, Del. (HedgeWorld.com)–Russell D. Glass filed a lawsuit against Ranger Entrepreneurs LP, a partnership controlled by Dallas-based shareholder activist Samuel E. Wyly, which was set up to develop an innovative “complex” of corporate governance-oriented hedge funds.

Mr. Glass, an investment manager formerly associated with Carl Icahn, had joined in a joint venture with Ranger only five quarters before,

The complaint, dated April 8, prepared by Joel Friedlander, a partner in Bouchard, Margules & Friedlander, Wilmington, Del., states that Mr. Wyly induced Mr. Glass to form a joint venture for the purpose of creating hedge funds that would invest in corporate equities and debt, seeking to unlock value locked up by inadequate corporate governance. The complaint charges, furthermore, that Mr. Wyly “misappropriated business opportunities … and engaged in business extortion in an effort to gain economic advantage over Glass.”

K. Scott Canon, a spokesperson for Mr. Wyly, declined to comment on the lawsuit Wednesday.

Ranger Entrepreneurs, as Mr. Wyly’s corporate vehicle, entered with Mr. Glass into a principals’ agreement in January 2002, specifying that both parties would have to agree on all material decisions related to the fund’s complex. In reliance upon this contract, Mr. Glass resigned his position as president and chief investment officer of Icahn Associates Corp., New York.

In its brief life, the joint venture has established four hedge funds, two Delaware entities and two offshore. The agreement allocated to Mr. Glass and Ranger, respectively, 60% and 35% of the economic interest in this funds complex, with the remaining 5% reserved for employees and others.

In a separate (oral) agreement, Mr. Wyly allegedly undertook to pay Mr. Glass approximately US$3 million if he entered into an agreement with his former employer, Icahn, resolving certain outstanding issues between them. Mr. Glass did so.

Mr. Glass also pursued, with Mr. Wyly’s consent, the creation of an index fund with a corporate governance orientation. The complaint contends that in June 2002, one of Mr. Wyly’s representatives threatened to divert the index fund opportunity to one of Mr. Wyly’s other business ventures and to renege on Mr. Wyly’s plan to compensate Mr. Glass for settling with Icahn, unless Mr. Glass agreed to “substantive changes in the principals agreement that were highly advantageous to Wyly and to further changes in the documentation for the funds that were highly advantageous to employees of the Wyly entities.”

The complaint does not name the person who conveyed these threats. It does claim, though, that the threats were both a breach of contract and of fiduciary responsibility.

Mr. Glass reluctantly agreed to these demands and that agreement resulted in another principals’ memorandum dated Nov. 27, 2002. During the second half of 2002, overlapping with the negotiations that led to the November memo, Mr. Glass and his staff developed an arbitrage fund on behalf of the joint venture. Subsequent to the November memo, the Wyly entities diverted this fund, too, from the joint venture with Mr. Glass for their own independent exploitation.

Mr. Glass demands at least US$200 million in damages and injunctive relief.

In 1990, Mr. Wyly founded long/short equity hedge fund Maverick Capital Ltd. By 1993, it had achieved returns of more than 40% a year and hired Lee Ainslie as manager. In 2001, Mr. Wyly gave up his ownership interest in Maverick and using other vehicles at that time he began a proxy campaign to take control of Computer Associates International Inc., New York, Previous HedgeWorld Story. That fight ended in July 2002, when Computer Associates agreed to pay Mr. Wyly and entities under his control US$10 million in consideration for a five-year standstill agreement Previous HedgeWorld Story

.CFaille@HedgeWorld.com