Investor Sues Paulson Over Sino-Forest Losses

Feb 22 2012 | 10:04am ET

A Miami investor is suing a firm run by John Paulson, claiming the hedge fund billionaire failed to do proper due diligence before taking a large position in a possibly fraudulent Chinese timber company.

Hugh F. Culverhouse (whose namesake father once owned the Tampa Bay Buccaneers of National Football League fame) brought a lawsuit on Tuesday against Paulson & Co., and Paulson Advisers of New York, claiming that they caused the Paulson Advantage Plus fund to purchase stock in Sino-Forest Corporation. The suit was filed with the U.S. district court in the U.S. District Court for the Southern District of Florida.

Culverhouse is hoping to get other disappointed Paulson investors to join him, expanding the suit into a class action, according to his Miami-based lawyers—Harvey Gurland of Duane Morris and Lawrence Kellogg of Levine Kellogg Lehman Schneider + Grossman.

Sino-Forest shares, listed in Toronto, plummeted about 70% over two days last June after hedge fund Muddy Waters accused the company of overstating its timberland holdings in China's Yunnan Province.

Paulson told investors that losses from its Sino-Forest Corp. investment totaled some C$562 million (US$574 million). The hedge fund, which once held a 12.5% stake in the company, said it suffered net realized losses of C$105 million over the life of its investment, as it had sold much of its stake between early 2010 and May 2011.

“With just the basic due diligence, the Paulson companies could and should have foreseen Sino-Forest’s problems,” Gurland said in a statement after filing the lawsuit. “Instead, Paulson simply threw money at the company with a shocking disregard for the financial well-being of its investors.”

Paulson & Co. said in a statement that the lawsuit was “without merit,” reports Bloomberg. “As in all our investments, Paulson has access to the same information that everyone else in the securities markets does. Like other public market investors, we must rely on audits and underwriter due diligence for comfort that financial statements and disclosures are accurate and reflect the true state of affairs at companies with publicly traded securities.”


In Depth

Whisky Business: The Ultimate Liquid Alternative Investment

Sep 15 2014 | 7:02am ET

David Robertson knows his single-malt whisky—he was the Master Distiller at the...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.