Investor Lawsuit Against Highland Tossed

May 29 2013 | 11:21am ET

Highland Capital Management has won the dismissal of an investor lawsuit alleging it misled clients about a hedge fund that imploded during the credit crisis.

A Texas state judge in Dallas agreed with Highland that the plaintiffs had no evidence to present at trial, which was to begin yesterday. "Having reviewed the evidence submitted by the parties and after conducting a hearing on the matter, the court is of the opinion that defendants' motion should be granted," Judge Dale Tillery wrote.

The plaintiffs alleged that Highland misled investors about the prospects for its Highland Credit Strategies, which imploded amidst the credit crisis when Barclays Capital canceled its credit line and seized assets. The investors argued that Highland fraudulently covered up the fact that it was facing $471 million in redemptions that it couldn't cover. A lawyer for the group, Geoffrey Jarvis, said an adviser to the investors had asked about redemptions, and had been told they were "fairly light." In fact, investors had moved to pull 42% of the fund's assets.

The investors argued that they relied on Highland's assurance in the spring of 2008 when deciding to stay in the fund.

At last month's hearing, however, Highland lawyer Michael Aigen argued that "a vague statement that the outlook of the fund is good isn't the same as if Highland said the redemption rate was X when it was actually Y."

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