Boaz Weinstein's fund is being sued for 'manipulating the value' of its assets

One of Canada’s largest pension boards is suing Saba Capital, the hedge fund run by credit trader Boaz Weinstein, for allegedly “manipulating the value” of their investments in a fund.

The Public Sector Pension Investment Board (PSP Investments)
had $US500 million in the Saba Offshore Feeder Fund, making it the fund’s largest investor.

In a complaint filed Friday, it accused Saba of marking down the fund’s portfolio when the board asked for a redemption.

The suit accused Saba of “artificially manipulating the value of the Board’s investments in the Fund in order to benefit defendants at the expense of the Board.”

The pension board first invested $US300 million in February 2012 in exchange for Class A shares. In June 2013, it made another investment of $US200 million. Saba Capital, however, began to suffer declines, having losing years in 2012, 2013, and 2014.

The fund’s assets began to dwindle. In March 2012, the fund had $US3.9 billion in AUM. By the summer of 2014, it was $US1.5 billion, the complaint said.

At the beginning of 2015, PSP Investments requested to redeem all of its shares, effective March 31, 2015. According to the complaint, Saba Capital asked that they redeem in three installments. The pension board insisted on one full redemption.

The complaint alleges that Saba Capital “agreed to proceed with a full redemption, but improperly manipulated the values of certain of the Fund’s assets with the objective of artificially depressing the amount to be paid to the Board in satisfaction of its full redemption request.”

More from the complaint (emphasis ours):

In the first phase of this manipulation, defendants arbitrarily recorded a material markdown of the value of certain corporate bonds comprising a significant portion of the investment portfolio held for the benefit of the Saba Offshore Feeder Fund and its investors. Defendants engineered this one-time markdown in bad faith to deprive the Pension Board of the full amount of the redemption proceeds it was entitled to receive based on the value of the Fund’s assets as of March 31, 2015. 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 stanch further investor defections from the Fund and to directly benefit themselves by boosting the residual value of their investments in the Fund and other affiliated hedge funds with exposure to the same bonds. As a result of defendants’ self-dealing, the Pension Board incurred a substantial loss on its investment in the Fund, for which defendants are liable.

We reached out to a spokesperson for Saba for comment.

Before founding Saba in 2009, Weinstein was the co-head of credit trading at Deutsche Bank. In 2011, he made headlines for being the trader who took the other side of JPMorgan’s disastrous “London Whale” trade. At its peak, Saba managed $US5.5 billion in assets.

PSP Investments manages the assets of the pension plans of the Canadian Forces, the Royal Canadian Mounted Police, the Reserve Force of Canada, and the Public Service of Canada.

The suit,
Public Sector Pension Investment Board v. Saba Capital Management, L.P. et al, was filed in New York County Supreme Court on Friday.

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