Hedge Fund Faces Possible Lawsuit Over Illiquid Investments

Absolute Capital Management, a $3.2 billion AIM-listed hedge fund, may be on the brink of litigation over illiquid investments. As much as $500 million of Absolute’s funds were in lightly traded, unregulated, bulletin-board-listed, U.S. stocks.

A group of Absolute investors has hired counsel to look into how the fund became so heavily invested in these “pink sheet” shares. The investors claim that they had no knowledge of the fund’s heavy investment in these types of stocks until after the sudden departure of Absolute’s chief investment officer.

Absolute has begun an emergency restructuring of the fund, shuffling the lightly traded shares into a “side pockets” structure. The lead attorney for the Absolute investors said that the side-pockets restructuring was not the end of the matter: “My clients want explanations as to what has led to this situation.”

For more, see the Times article

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