SPM’s Don Brownstein, who was recently named the best performing hedge fund manager of 2010 by Bloomberg, has a scary strategy for making his point according to a former employee.In a recent lawsuit he filed against SPM, Jeff Kong, a former portfolio manager, writes (via) Stamford Advocate:
“Brownstein’s management style was, at times questionable.”
“For example, as in the famous scene from the movie “The Untouchables,” Brownstein would often walk around the crowded conference room table while slapping the palm of his hand with a baseball bat, stopping behind me while stating, ‘I’ll kill you if you leave. The only way you can leave this firm is in a body bag.'”
That’s just the tip of the iceberg of weirdness about this lawsuit.
On the surface, it’s your typical angry trader who didn’t make enough money even though his trades are the main reason the firm did well lawsuit. Case in point: in his claim, Kong writes that the firm owes him $74 million and states various accomplishments:
- His portfolio of funds earned $634.2 million in trading profits in 2009
- He generated $147.1 million in incentive fees.
- He generated another $17 million in management fees.
- Since he joined the firm, assets under management rose from $30 million to $1.77 billion.
- He is particularly adept at managing interest-only securities.
(In a counter filing, by the way, Brownstein explains that it just wasn’t in Kong’s contract to earn a percentage of his profits (which is rare, so we understand Kong’s point) — his contract stipulated that his bonus would be at the discretion of his boss. Thus Brownstein paid him only $5 million.)And then you get to the weird stuff.
Like how Kong explains the strategy he uses to adeptly manage interest-only securities, which would seem to be (at least sort of) proprietary information, especially since his former boss, Brownstein, doesn’t discuss how he made his returns.
When he was named the best hedge fund manager of the year, all Brownstein would say is that he made his money in mortgages.
As if to burn him, Kong writes in his filing:
Interest-only securities are risky instruments that can change in value dramatically with a rise or fall in interest rates. These securities are created by splitting the interest portion of payments away form the principle part of mortgage payments and bundling them.
And then the details revealed in the lawsuit just gets spiteful — or really juicy, depending on how you look at it.Like this, as described by the Stamford Advocate:
Kong is seeking a temporary restraining order because he fears SPM will distribute all its liquidity, a figure he puts at $90 million, though there is no confirmation on this.
He also said he’s worried investors will cash out of the fund as well.
Ultimately, a lot of this comes down to whether or not Kong broke an alleged agreement not to move to a rival firm (he did move to another firm – Passport Capital), and whether or not Kong is owed $74 million.
The opposing arguments are:
Kong says his experience and specific talent as a trader allows him to adjust strategy and buy and sell securities to maximise profit. SPM argues that Kong will take its strategies to another firm and apply it there, which could hurt SPM’s business.
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