Ex-Citi Hedge Fund Manager Blames Bank For Fund’s Losses

Jul 28 2008 | 10:24am ET

A former Citigroup hedge fund manager has accused the troubled giant of acting against the best interests of the fund’s shareholders.

John Pickett, who ran CSO Partners from its inception in 1999 until his resignation in December, filed a sealed complaint with London’s Employment Tribunal, which handles disputes between employees and employers, accusing Citi of wrongfully forcing him out. Pickett seeks unspecified damages against the firm.

According to Pickett, Citi overruled him after he attempted to back out of a bid for some $730 million in leveraged loans at the height of the growing credit crisis last summer. Pickett argued that Morgan Stanley and the other banks selling the loans changed the terms of the deal and sought to cancel the order. But after Morgan Stanley complained, John Havens, who heads Citi’s alternative investments unit and has since been promoted to lead its investment bank, ordered Pickett not to sue the banks and reached a settlement that cost CSO $746 million, sending it to a 10.9% loss last year.

Pickett’s complaint accuses Citi of putting the interests of the banks—Havens, CEO Vikram Pandit and several other high-ranking Citi executives are Morgan Stanley alumni—ahead of the financial interests of shareholders.

Citi calls the complaint “without merit” and charges that Pickett simply made a bad bid on the loan package. The firm suspended redemptions in CSO Partners in February after investors tried to yank 30% of the $500 million corporate debt fund’s assets. At the same time, the bank bailed out the hedge fund with a $100 million capital injection.


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