JPMorgan Employee: Highland ‘Artificially Manipulated’ Fund Values

Jul 7 2010 | 11:38am ET

Highland Capital Management manipulated the net asset value of some of its hedge funds, a JPMorgan Chase employee alleges.

The Dallas-based hedge fund is not named in Kevin Dillon’s “whistle-blower” lawsuit against JPMorgan. But Dillon said his bosses at the bank, which services Highland’s funds, tried to force him out after he pointed out Highland’s “highly questionable accounting and management practices,” Greenwich Time reports.

“Almost immediately after observing Highland’s improper practices, [Dillon] regularly communicated his observations to the supervisor and told the supervisor that defendant should not continue facilitating Highland’s improper practices,” Dillon’s suit, filed in Connecticut state court last week, alleges. “To [Dillon’s] surprise, the supervisor indicated that defendant was aware of Highland’s improper practices and that nothing would be done to remedy the issue.”

Dillon, a client processing specialist at JPMorgan’s Greenwich, Conn., offices, added that the supervisor, who is not identified in the suit, told Dillon of “the wide array of guns he possessed and described to him the violent acts he would commit if anybody crossed him or his family.”

Dillon’s lawsuit specifically names Highland’s Crusader fund, which collapsed in 2008. A group of investors have sued the firm, alleging it lied to investors about the level of redemptions from the fund as it was collapsing.

As with that lawsuit, Highland is denying any wrongoing.

“Highland Capital Management is not a defendant in the case and unfortunately, appears to be a pawn in a lawsuit by a disgruntled JPMorgan employee against JPMorgan,” the hedge fund said in a statement. “As it relates to Highland, the plaintiff’s comments are entirely false and misleading.”

The firm added, “Highland will consider whether further action is required against the plaintiff in response to these potentially defamatory statements.”

In his lawsuit, Dillon alleged that Highland was “artificially manipulating” the value of its funds by transferring assets between funds at deceptive settlement prices. He also alleged that Highland back-dated the cross trades, and moved money-losing assets into the Crusader fund to protect its other funds.

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