Despite starting the year off on positive returns, John Paulson’s horrible 2011 isn’t done haunting him.
Miami-based investor Hugh Culverhouse has filed a lawsuit against Paulson and his hedge fund Paulson & Co, claiming that the firm did not conduct enough research into Sino Forest before investing in the Chinese forestry company, the Wall Street Journal is reporting. The suit is reportedly a first for Paulson after his year of losses during which his flagship fund was down nearly 50%.
Sino-Forest was one of the first blows for Paulson last year—share prices for the company plunged after Carson Block at Muddy Waters Research released a report alleging that the company was a fraud in June 2011. Although initially reports stated that Paulson may have lost over $500 million from his funds’ investment in Sino-Forest, a Paulson & Co. spokesperson told the WSJ that the hedge fund’s net loss was $100 million from Sino-Forest.
It is unclear how much in damages Culverhouse is seeking, but since the lawsuit is seeking class-action status, it may have some potential. From the WSJ:
The lawsuit, which is seeking class-action status, alleges that Mr. Paulson’s firm “failed to expend the resources to conduct the proper initial due diligence into Sino-Forest’s operations,” and that the firm “failed to properly monitor” its investment.
The lawsuit also alleges “gross negligence and a breach of” the duties of Mr. Paulson’s funds to its investors.
This isn’t the first time that firms have been sued over Sino-Forest’s drastic losses. A Hong Kong-based hedge fund sued Morgan Stanley for $9.3 million last September over options they bought for Sino-Forest.
As for the man suing Paulson—Culverhouse is well known for being part of the family that used to own the football team the Tampa Bay Buccaneers. The attorney is a former federal prosecutor—which means he knows his legal issues!—and once had over $12 million invested in five different Paulson funds, according ot the WSJ.