When hedge fund founder Michael Klein died just before Christmas, a promise he allegedly made to a pair of investors may have died with him.
Institutional investors The Sorenson Trust and Relief Return International allege that Klein assured them they would be able to redeem their investments in the Pacificor hedge fund with 30 days notice, even after they approved changes to its withdrawal policy that extended the notice period to 90 days. The Santa Barbara, Calif.-based hedge fund says it can’t give the trusts special treatment.
Unsurprisingly, the trusts aren’t taking that as the last word, and have sued a pair of Pacificor funds, demanding their money back—with interest.
At issue is a promise Stephen Sorenson, who has ties to both trusts, says Klein made before his death in a plane crash. Sorenson said he was wary of the proposed redemption policy changes, which would also institute a one-year lockup. But Klein assured him that the trusts could withdraw their investments, which total $24 million, under the old terms if the request was made by Dec. 31.
Having given their assent to the changes, the trusts on Dec. 27—four days after Klein’s death—notified Pacificor of their intent to withdraw their investments by Jan. 31.
Not so fast, the hedge fund shot back, saying the trusts were now bound by the new redemption policies. That means that their money is locked up until at least March 31, and that The Sorenson Trust’s $14 million investment is subject to a 4% penalty for early withdrawal.
“We are very disappointed that Pacificor is unwilling to honor the terms of our written agreements and the personal assurances that Michael Klein made prior to his death,” Sorenson told the Pacific Cost Business Times.
Sorenson and the trusts filed their lawsuit in Santa Barbara County Superior Court on Feb. 6.
Klein was killed in a plane crash near Panama on Dec. 23 along with his 13-year-old daughter, Talia, and the pilot, 23-year-old Panamanian Edwin Lasso. Talia’s best friend, 12-year-old Francesca Lewis, was the sole survivor of the accident.