Ex-Congressman Sues Carlyle

Jul 16 2009 | 10:59am ET

A former congressman is suing the Carlyle Group over the collapse of a mortgage-backed securities hedge fund last year.

Michael Huffington accuses Carlyle and co-founder David Rubenstein of misrepresenting the risk of Carlyle Capital Corp. The mortgage hedge fund, which employed tens of billions in leverage, missed a margin call in March 2008, leading banks to seize its assets and liquidate the fund.

Huffington, who lost $20 million on Carlyle Capital, said he was personally assured by Rubenstein—introduced to him by former President George H.W. Bush—that the fund was “low risk.” He said that Rubenstein visited him in Boston to push the fund, and told him in a 2006 letter that its “downside is very limited.” What’s more, after the fund collapsed, Huffington said Rubenstein assured him, “I guarantee you will get your money back.”

“Mr. Huffington did not get his money back,” the lawsuit, filed in Massachusetts state court, alleges.

Huffington’s suit is the first stemming from the collapse of Carlyle Capital.

Huffington, a Republican, represented southern California in Congress for one term in the early 1990s. He narrowly lost a bid for the U.S. Senate in 1994—the year when Republicans took control of both houses of the U.S. Congress—and was once married to Arianna Huffington, the conservative-turned-liberal commentator and blogger.

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