Highland Capital Management, the debt manager with about $22 billion in assets under management, and J.P. Morgan Chase were sued by the $1.9 billion Houston Municipal Employees Pension System over claims that willful looting led to the demise of the Highland Crusader Fund.
Highland co-founders James Dondero and Mark Okada caused the Crusader Fund to engage in “dozens of self-interested transactions” with Highland affiliates designed to benefit the firm at the fund’s expense, the pension fund said in the complaint.
The pension plan, which invested $15 million in the fund, is seeking unspecified losses caused by the alleged wrongdoing.
The Crusader Fund “was harmed by virtue of being stuck with poor quality assets that it would not have had if the partnership had been managed in the best interests of the partnership and its limited partners,” lawyers for the pension plan said in the complaint filed in Delaware Chancery Court.
Highland, founded by Messrs. Dondero and Okada in Dallas in 1993, announced plans in October 2008 to close its flagship Crusader Fund and the Highland Credit Strategies Fund over a three-year period after suffering losses on high-yield, high-risk loans and other types of debt. Since then, the firm and two J.P. Morgan units that administered the funds have been sued over claims of fraudulently misleading investors about the health of the funds and failing to provide accurate monthly statements.
“We are extremely disappointed by the action filed today by a single law firm in the Delaware Court, which is an attempt to derail the continued hard work of over 100 investors,” Armel Leslie, a Highland Capital spokesman, said in an e-mail. “As highlighted by the recently announced agreement among investors in the Highland Credit Strategies hedge fund, we are confident that an equitable solution that benefits all Crusader investors will be reached.
Jennifer Zuccarelli, a J.P. Morgan spokeswoman, had no immediate comment on the complaint.