Lawsuit Over Paulson Loss Tossed

Apr 3 2013 | 11:55am ET

A federal judge has dismissed a lawsuit accusing Paulson & Co. of due-diligence failures in its investment in a Chinese timber company, one that cost the hedge fund's investors almost $600 million.

U.S. District Court Judge Marcia Cooke in Miami threw out the would-be class-action, ruling that the plaintiff lacked standing because his investment with Paulson was through a Citigroup feeder fund, meaning Paulson had no fiduciary duty towards him. The judge said a complete, written order would follow, but dismissed the case "without leave to amend."

The plaintiff, Hugh Culverhouse, a former federal prosecutor and the son of the former owner of the National Football League's Tampa Bay Buccaneers, accused Paulson of "gross negligence" and "shocking disregard for the financial well-being of its investors" in buying up 12.5% of Sino-Forest Corp. That company's shares plummeted in 2011 when another hedge fund accused it of overstating its timberland holdings in China.

Paulson told investors that it booked a C$105 million loss over the life of its Sino-Forest investment.

"We are pleased with the judge's ruling," Paulson spokeswoman Dawn Dover said. "We have stated from the outset that this suit was completely without merit and that there was no basis in law or fact for the action."

Culverhouse told The Wall Street Journal that it was not fair that he was barred from suing Paulson simply because he hadn't invested with the firm directly.

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