Boaz Weinstein’s Saba Capital Management was slapped with a lawsuit on Friday, September 25th, alleging the firm cheated a major investor a few months ago when they asked for a redemption from one of its funds.
Canada’s Public Sector Pension Investment Board sued Saba Capital Management, founded by ex-Deutsche Bank trader Weinstein. alleging that the hedge fund reduced the value of its portfolio just before paying out the redemption request, then increased the fund’s value again after the money was paid out, based on documents related to the suit filed in New York State Supreme Court.
Statement from Boaz Weinstein
Weinstein commented in a statement that the lawsuit from PSP was “utter nonsense” and that the accusations were “completely false.” He went on to claim the fund’s valuation processes were all approved by advisers including auditors and lawyers. “I take these allegations very seriously,” he noted.
Details from lawsuit against Saba Capital
Based on filings in the lawsuit, PSP said it invested a total of $500 million in 2012 and 2013 into Saba’s offshore fund. About a year ago, however, PSP officials said it began “to lose confidence in the defendants’ ability to implement effective risk measures or maintain a properly constructed investment portfolio,” according to filings in the suit.
PSP made a redemption request in early 2015, and denied a request from Saba to postpone at least part of the redemption until a later date. When it was forced to refund PSP’s cash and also funds of other investors totaling more than 70% of the offshore fund by March 31, the lawsuit claims Saba “arbitrarily recorded a material markdown of the value of certain corporate bonds” (those of publisher McClatchy Co.).
The filings in the suit also note: “Just one month later, defendants abruptly marked the bonds back up to the values they recorded immediately prior to the redemption. They did so to further investor defections from the Fund and to directly benefit themselves.”
According to knowledgeable sources that spoke to the Wall Street Journal, Saba’s main fund was down a stunning 6% in March, its worst month ever. Then in April, the fund skyrocketed 10% for its best month ever, the source noted.
The PSP lawsuit claims that by reducing then inflating the value of the McClatchy debt, Weinstein deviated from earlier practices and ignored the pricing estimates of external sources, saying: “They shopped for lowball bids…in order to reduce the aggregate amount of redemption proceeds.”