One Hedge Fund Sues Another For Slander

May 6 2008 | 9:24am ET

Kansas hedge fund Jayhawk Capital Management is going to court to preserve its good name.

Sued last year by San Francisco hedge fund shop Primarius Capital for allegedly orchestrating a pump-and-dump scheme to Primarius’ detriment, Jayhawk has countersued for slander in Kansas City, Kan., federal court.

At issue is a press release issued by Primarius’ law firm, headlined “Billion Dollar Jayhawk Hedge Funds and Jayhawk Capital Management Sued for Conspiracy, Fraud, Fagelbaum & Heller Announces.” Jayhawk and its principal, Kent McCarthy, maintain the release was defamatory and contributed to millions in losses for the Prairie Village, Kan.-based firm, including BlackRock’s decision to redeem $15 million from one of its funds.

In the release, Primarius lawyer Phillip Heller implied that Jayhawk was among “a handful of predatory, unethical managers and advisers who think of themselves as above the law” and accused Jayhawk of orchestrating a cover-up.

At the time, a stunned McCarthy told FINalternatives, “I’ve never dealt with a lawyer who conducts himself this way.”

McCarthy and Jayhawk dismiss Primarius’ claims, saying it wanted to withdraw its $20 million investment in part due to Primarius’ poor performance. The slander suit calls Primarius’ lawsuit “a veiled attempt to shift the blame for its poor performance and other failings.”

Primarius’ statements, including the Heller press release, “were willfully and maliciously aimed at conveying the false message that Jayhawk and McCarthy’s business practices are unethical and illegal.” Jayhawk is seeking unspecified damages for defamation, wrongful interference with contract and wrongful interference with business relationships.

Heller, for his part, called Jayhawk’s countersuit “more of the same nonsense.”

“I don’t think they’ll have any more success in federal court than they had in state court,” Heller told the Kansas City Star, referring to a Kansas state court’s dismissal of a similar action earlier this year for lack of personal jurisdiction.

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