Boston Partners Asset Management was charged in a civil suit with naked short-selling (selling stock the firm neither owns nor has borrowed or attempted to borrow) and deliberate attempts to drive down the share price of American Business Financial Services Inc., a Philadelphia-based mortgage lender which filed for Chapter 7 bankruptcy protection in January 2005, according to documents filed by court-appointed bankruptcy trustee, George L. Miller. The suit, filed in U.S. District Court in Delaware on Dec. 30, seeks unspecified compensation and punitive damages.
Mr. Miller's suit alleges that managers of Boston Partners' Long/Short Equity fund conducted naked short selling of ABFS shares beginning late in 1999; engaged in "spoofing" (offering to buy or sell a large number of shares at a price intended to discourage potential buyers or sellers of the stock from doing either); and conducted a "vicious pattern of conduct, including sending anonymous letters to potential business partners of ABFS and Internet postings designed solely to damage and … destroy plaintiff ABFS' business."
According to hedge fund sources, the Boston Partners' hedge fund had $32 million in assets and has a one-year return of 14.14% on Dec. 31.
Also charged in the suit was Depository Trust & Clearing Corp., the trade clearinghouse used by Boston Partners, as well as individuals and institutions not yet identified. Lisa Argento, a DTCC spokeswoman, did not return a call seeking comment.
Boston Partners responded in a statement: "A similar complaint against Boston Partners by American Business Financial Systems in 2004 was dismissed. This most recent complaint filed recently by the bankruptcy trustee for ABFS makes absurd allegations that Boston Partners was responsible for the failure and bankruptcy of ABFS. The bankruptcy trustee is faced with creditor claims significantly in excess of assets. While we can understand the urgency of finding assets to meet these demands, we find it deplorable that the bankruptcy trustee has retained contingency counsel to improperly target Boston Partners as a solution. We have not been served with the lawsuit. But if and when we are, we will fight it aggressively."