NEW YORK (HedgeWorld.com)–PlusFunds Group Inc. will close down its operation following the meltdown of a deal that would have seen private equity firm FTVentures buy PlusFunds for $2 million, plus the assumption of $3 million in liabilities.
Exactly what led to the collapse of the purchase deal has not been made public. Court documents pertaining to the reasons have been sealed by the bankruptcy judge overseeing PlusFunds Chapter 11 bankruptcy proceeding, and by extension the proposed sale of the firm to FTVentures.
A spokeswoman for FTVentures said it was the firm’s policy not to disclose details of transactions. She said only that certain closing conditions involving the PlusFunds transaction weren’t met, so the deal was not completed.
One potential stumbling block involving a hang-up over the transfer of the license to use the Standard & Poor’s hedge fund indexes as the basis for the SPhinX product line was resolved when the judge ordered the license transfer to go through. Another license issue concerning OTC Inc. was also resolved.
Nevertheless, on May 1, FTVentures notified PlusFunds by letter that it was terminating the asset purchase agreement. According to PlusFunds’ request to wind down the company, filed in bankruptcy court, FTVentures said it pulled out of the deal because PlusFunds “was unable to satisfy certain closing conditions.”
One day later, on May 2, Bear Stearns Asset Management Inc., which had asked to be designated by the court as the back-up bidder to FTVentures, withdrew that request, leaving no buyers for PlusFunds.
“PFGI’s past and present substantial efforts to locate another purchaser for all or any significant portion of its assets have proved unavailing,” PlusFunds wrote in its proposal to the bankruptcy court to close the company. “Accordingly PFGI has determined that it is necessary and appropriate to immediately commence the process of winding down its affairs.”
On May 5, PlusFunds said it laid off about half its employees. It sought from the court approval of a severance plan to cover the remaining employees, who PlusFunds said were necessary to carry out the wind down. They would receive 50% of their regular pay once the company closed.
As part of wind down, PlusFunds also proposed that the SPhinX Funds, entities created under the license agreement with S&P to track the performance of the S&P Hedge Fund Indices and to which PlusFunds serves as investment manager, pay increased fees to PlusFunds while the company decides whether to wind down the various SPhinX funds or try and transfer them to another investment manager.
The judge in the bankruptcy case, James M. Peck, on Monday [May 15] approved PlusFunds’ wind-down agreement with the SPhinX Funds, the severance plan, and various procedures for quick assumption and assignment or rejection of certain contracts and active leases.
PlusFunds’ death-spiral was initiated by last October by an accounting scandal at Refco involving Philip R. Bennett, the firm’s former chairman and chief executive.
The approval of the wind-down plan came over the objections of several firms that did business with PlusFunds, including Rydex Capital Partners LLC. Rydex had some of its investors’ money in the SPhinX Managed Futures Fund, for which PlusFunds served as the investment adviser. When the Refco bankruptcy judge froze $312 million in SMFF assets that PlusFunds founder Christopher Sugrue had ordered transferred out of Refco just after the accounting scandal erupted but just before Refco declared bankruptcy, Rydex customers by extension lost access to some of their assets. Rydex in response pulled its business from PlusFunds.
The SPhinX Managed Futures Fund recently settled the asset transfer claim with Refco’s creditors, agreeing to pay $263 million.
Rydex officials, in a motion filed with the bankruptcy judge, took particular issue with PlusFunds’ proposal to use cash to pay off Mark Kavanagh, listed as a debtor-in-possession lender to PlusFunds. Mr. Kavanagh is an investor in PlusFunds. Rydex called the use of PlusFunds assets to pay Mr. Kavanagh “highly suspect.”
Contact Bob Keane with questions or comments at firstname.lastname@example.org.