Portfolio Manager Sues Over Hedge Fund That Never Launched

Aug 4 2010 | 2:55am ET

Diamond Lake Investment Group never generated a nickel for an investor. But it has generated at least one lawsuit.

The hedge fund, founded by former Merrill Lynch trading chief Dow Kim, never got off the ground. By the end of 2007, Kim had lost the substantial commitments made to Diamond Lake by Merrill, Credit Suisse and a pair of Asian investors. Michael Pasternak, a portfolio manager during Diamond Lake’s short life, doesn’t think that absolves Kim of the commitments he made to his employees.

According to Pasternak’s lawsuit, Kim lured him to Diamond Lake—and away from a job offered by Morgan Stanley—with promises of a minimum salary of $2 million per year for the first three years. Kim told Pasternak that he had lined up between $1 billion and $2 billion from three investors, two in Asia and one in Europe, the suit alleges, although Pasternak claims Kim would not tell him who the investors were.

The only problem was, according to Pasternak’s lawsuit, that Kim “did not have the agreements with strategic investors.” Pasternak also accuses Kim of misrepresenting the situation to him.

Pasternak is seeking $12 million—$6 million for each of his two claims—not for the three year-guarantee he received from Kim, but for the compensation he was guaranteed by Morgan Stanley Investment Management, as well as punitive damages.

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