PAAMCo Won’t Appeal Sussman Ruling

Nov 11 2010 | 2:08am ET

Pacific Alternative Asset Management Co. will not appeal a court ruling that has resulted in a Securities and Exchange Commission probe.

The fund of hedge funds said it would not seek to overturn a decision that awarded a 40% stake in its parent company to Paloma Partners founder S. Donald Sussman. That ruling, in which U.S. District Judge Richard Sullivan wrote that the firm’s association with Sussman “may have been designed to mislead a number of observers, from the tax authorities to the SEC to entities wishing to invest in women-owned businesses,” spurred the very same SEC to launch an investigation into PAAMCo.

Sullivan’s ruling allowed Sussman to convert the $2 million convertible loan he seeded PAAMCo with into the equity stake. The judge ruled that the firm structured the investment as a convertible loan so that it would “qualify as a women-owned business.”

“We, as well as our attorneys, believe that the court’s decision was flawed and that we have strong grounds on which to appeal,” PAAMCo said in a statement. “But, after careful consideration, we have decided that it is in the best interests of our clients and employees not to appeal.”

Certainly, the hullabaloo surrounding the Sussman case has not helped PAAMCo. The firm has lost at least one mandate in the wake of the ruling, seen another delayed and found itself under greater scrutiny by existing clients.

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