Boaz Weinstein Accused of Asset Manipulation

MANHATTAN (CN) - Hedge fund manager Boaz Weinstein "improperly manipulated the values" of a feeder fund's assets to cheat its largest investor, a Canadian pension that poured $500 million into the account claims in court.

Based in Montreal, the Public Sector Pension Investment Board manages the plans of the Canadian Forces, the Royal Canadian Mounted Police, the Reserve Force of Canada and the Public Service of Canada.

It sued Weinstein and three of his Saba Capital companies on Friday in Manhattan Supreme Court.

The Canadian pension says it first invested in the Cayman Island-based Saba Offshore Feeder Fund in 2012 with $300 million in initial capital. A year later, it put in $200 million more, according to the 14-page complaint.

The first year of the investment, Forbes ranked Weinstein 28th in its list of "The 40 Highest-Earning Hedge Fund Managers."

Though Weinstein's offshore feeder fund reported $3.9 billion in net asset value that year, it sank to $1.5 billion by the summer of 2014, the pension says.

The pension says that "steep decline" was the subject of a number of telephone conferences that its representatives held with the defendants last year.

Because the funds were "unable to provide a satisfactory explanation" for the poor performance, the pension requested a 100 percent redemption of its shares, according to the complaint.

Hoping to keep the fund's other investors unaware of "this significant withdrawal," however, Weinstein allegedly tried to have the pension board redeem its shares in three installments, one-third at a time.

The pension says its board nevertheless "rejected this request and insisted on a full redemption of all of its Class A shares to protect its interests and ultimately those of its own stakeholders."

This led Weinstein and the funds to engineer a "one-time markdown in bad faith" that shortchanged the pension, according to the complaint.

The pension says Weinstein then "abruptly marked the bonds back up" in an effort to "staunch further investor defections."

At the time of the redemption on March 31 this year, the Saba Master Fund included a "significant position in fixed income securities" issued by The McClatchy Co., the pension said.

Weinstein released a statement saying he was "shocked" by the lawsuit's "completely false" allegations.

Although the pension accused the funds of shopping for "lowball bids" to artificially reduce the redemption, Weinstein ridiculed what he described as the "ludicrous and totally unsubstantioned" notion that Saba orchestrated such a "vast conspiracy."

"This lawsuit relates to a tiny portion of [the pension's] investment - just 2 out of nearly 1,200 positions, and a difference in value of less than $12 million out of an initial investment of half a billion dollars," he said. "I take these allegations very seriously. The valuation process was transparent, it was appropriate, it was fully vetted by auditors, counsel and others, and it was entirely fair."

The pension wants damages for breach of contract, tortious interference, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty.

It is represented by Seth Schwartz of Skadden, Arps, Slate, Meagher & Flom.

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