Steel Partners Fires Back At Lawsuit Over Fund Plans

Jan 29 2009 | 1:23am ET

Activist hedge fund shop Steel Partners has finally responded to the barbs slung at its plan to list its flagship fund by fellow activist Carl Icahn.

Responding to a lawsuit filed earlier this month by an Icahn-controlled company and Bank of America, Steel asked the Delaware Chancery Court for a dismissal, calling it “utterly without merit.”

At issue is Steel’s plan, revealed last month, to take its Steel Partners II fund public. The New York-based firm last month merged the hedge fund with Utah-based WebFinancial Corp.—an unlisted industrial loan company that it bought for the purpose of combining it with Steel II. Steel hopes to hold an initial public offering of the combined entity later this year.

But BofA and Icahn has railed against the plan, calling it “a classic ‘bait and switch.’” According to the lawsuit, Steel’s Warren Lichtenstein had assured Icahn last month that investors would be notified of the plan and no action would be taken until at least next month.

For its part, Steel says that Icahn is simply “looking for a scapegoat” for the fund’s investment losses.

“Because it is so obvious that plaintiff’s claim boils down to nothing more than one for an award of $15 million in damages (at the absolute most), plaintiff’s motion is so utterly without merit as to be frivolous and worthy of sanctions” against BofA and ACF Industries, the Icahn-linked railway car component manufacturer that is invested with Steel II, Steel’s lawyers wrote to the court.

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