Bayou Bankruptcy Ruling Increases Risks for Hedge Fund Investors

March 6, 2007

Risks to hedge fund investors may now linger even after they have redeemed their interests in the funds if the receiver, acting as chapter 11 manager of the defunct Bayou hedge funds, ultimately prevails in actions to recover $140 million from investors who withdrew from the funds within two years of bankruptcy filings.  According to a February 23, 2007 decision by Adlai S. Hardin, Jr., a bankruptcy judge in the U.S. Bankruptcy Court in the Southern District of New York, denying the motions to dismiss in 95 separate lawsuits against the redeeming investors, the complaints stated enough to make a prima facie case to recover both principal and ‘profits’ as fraudulent conveyances under federal and state law.  Unless the lawsuits can be disposed of with further motions by the defendants or by settlement, the parties must prepare for discovery and trial.

For more information about this e-Alert, please contact Carole Neville, Partner, Bankruptcy Group (212.768.6889 or cneville@sonnenschein.com).

Click here to read the e-Alert.


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