Hedge Fund CFO Says Boss Made Him Fall Guy

MANHATTAN (CN) - The founder and general partner of a $5 billion hedge fund used the company's CFO as a scapegoat when investors found out he used their money to buy a private Gulfstream jet, the former CFO claims in Federal Court. Perry Gruss claims that Daniel Zwirn, of D.B. Zwirn & Co., told him he had to leave the company so Zwirn could remain "pearly white" and "bullet proof."

Zwirn & Co. once managed more than $5 billion in assets. Gruss claims its founder began to live the life of an "investment magnate," including the private jet, "scores of professional and personal assistants" and a vacation home on the East End of Long Island.

Gruss claims that Zwirn had to "borrow heavily from commercial banks, the management company that ran his hedge fund business and even his limited partners" to maintain his lifestyle.

In 2006, Gruss claims, investors learned that Zwirn had bought his Gulfstream with investor funds and without their knowledge. They also found that the firm had collected management fees before they were due, according to the complaint.

That was enough to spook investors, who demanded $2 billion of their money back, and D.B. Zwirn & Co. had to shut down its two largest offerings, Gruss says.

Before the revelations became public, Zwirn allegedly selected his fall guy.

"Zwirn needed a scapegoat, someone upon whom he could pin the blame for these problems, giving himself plausible deniability while appeasing and reassuring investors," the complaint alleges.

Gruss claims that Zwirn made hundreds of phone calls to investors in the following months, "disseminating false information that Gruss was a criminal who had falsified documents to cover his tracks."

Gruss claims he had no idea investors' money had been used to buy the plane, and says "back office personnel" used a photocopied version of his signature to authorize two wire transfers to cover the down payment. Zwirn later returned the investors' money, Gruss says.

Gruss says he has not been able to find another job in the financial industry because Zwirn's statements falsely portray him as "incompetent, and worse, corrupt and dishonest."

He seeks $9.6 million in damages for defamation and breach of contract and is represented by Nick Akerman with Dorsey & Whitney.

D.B. Zwirn & Co. was acquired by Fortress Management, a New York private equity and hedge fund manager, in June.

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