Farmers Sue Hedge Fund Over Guar

Aug 28 2014 | 11:00am ET

A group of Texas farmers has sued a New York hedge fund, accusing it of defrauding them.

The guar growers filed five countersuits against Scopia Capital Management, alleging that the hedge fund and West Texas Guar conspired to not pay the 285 farmers for their crop last year. Scopia is West Texas Guar’s top shareholder, and alleges that the company failed to repay a $6 million loan made in 2012.

West Texas Guar has since filed for bankruptcy. A federal bankruptcy judge in May approved a settlement granting the farmers 75% of their claims. But an Aug. 15 payment deadline came and went due to Scopia’s litigation against West Texas Guar and the farmers.

The farmers say that Scopia knew all too well that West Texas Guar was in financial trouble when it made the loan. But, the countersuits allege, “there was a method to their madness.”

“Scopia fraudulently tricked these farmers into giving them their guar when they knew they couldn’t pay,” a lawyer for the farmers, Fernando Bustos, told the Lubbock Avalanche-Journal.

Guar is a bean used to make guar gum, which is used in both food processing and, increasingly, for hydraulic fracturing.

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