Hedge Fund Partner Shafted on Fees and Taxes
Filed in archive Hedgetalk on August 12, 2008

The Manager of the K Squared Funds, a New York-based group of hedge funds, was named as a defendant in a lawsuit filed by his ex-partner, according to HedgeCo.net. The suit brings claims for fraud, breach of contract, unjust enrichment, and bad faith dealing in connection with the hedge funds.
Filed in the Commercial Division of New York Supreme Court, New York County, the complaint details how Kane and the hedge funds benefited by false attribution of income to Kane's ex-partner by profiting from the interest income while saddling the ex-partner with the tax bill, and how Kane failed to comply with his contractual obligations, keeping his ex-partner in the dark about the value of the hedge funds.
The complaint further alleges that Kane belatedly provided incomplete information purporting to show that the hedge funds were valued at less than $100 million. At the same time, the complaint cites a circular to investors in which Kane boasted that assets under management during the period in question actually exceeded $150 million - well over the threshold at which he was obligated to pay his ex-partner management and incentive fees. Thus, the complaint alleges, Kane kept the fees that were rightfully due to his ex-partner. A conservative calculation of those fees puts them well into the six figures.

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