The investment adviser unit within Highland Capital Management filed for Chapter 11 protection ahead of a potential legal judgment, the Dallas-based firm said in a statement. The judgment, which stems from a fund known as
Highland was founded in 1993 by
Although Highland disputes the claims, the bankruptcy filing was necessary given the entity’s liquidity position, it said in the statement Wednesday. No other Highland entities are filing and business operations will continue without interruption, according to the statement. Highland operates mutual funds and invests in real estate.
“Rather than liquidating the fund at the height of the crisis for pennies on the dollar, HCMLP carried out a liquidation process over time intended to maximize recoveries for investors,” the firm said.
The Crusader fund has been in liquidation since 2011, when the fund’s investors together with Highland set up a group called the Redeemer Committee to coordinate the process. During that year, Highland said it
Between 2011 and 2016, HCMLP distributed more than $1.55 billion of the original $1.7 billion account balance, according to Wednesday’s statement. But, in 2016 the Redeemer Committee filed its complaint over timing of the fees and other related claims. In April of this year, an attorney for Highland said the
The Redeemer Committee is listed on the filing as the bankruptcy’s largest unsecured creditor, with a $189 million disputed claim. The Highland entity listed as much as $500 million in assets and liabilities in its Chapter 11
The Redeemer Committee had been “prepared for a hearing to confirm the award, when Highland filed for bankruptcy,” it said in an e-mailed statement. The committee, which had secured an arbitration award of about $189 million based on findings of “multiple instances of willful misconduct and breaches of fiduciary duty by Highland,” is confident it will recover the full amount through the bankruptcy process, according to the statement.
In late September, Highland announced that Co-Founder Okada was
In one such legal dispute last year, the former head of the firm’s structured products team, Josh Terry, successfully prosecuted an involuntary bankruptcy against two companies controlled by Highland: Acis Capital Management LP and Acis Capital Management GP LLC, an investment adviser and CLO manager, according to court documents and a
Terry was fired in 2016 after becoming embroiled in disagreements with Dondero. Arbitration over his termination awarded him an $8 million judgment in December 2017, according to a federal judge’s ruling on Acis’ bankruptcy in January.
Concerned that Highland was rendering Acis insolvent immediately after he won the arbitration award, Terry initiated the involuntary bankruptcy case against Acis, according to the judge’s ruling. Upon emergence from bankruptcy, Acis would be owned by Terry, Acis said in a February statement.
The case is Highland Capital Management LP,
(Updates with statement from Redeemer Committee in ninth paragraph.)
--With assistance from
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