Personal Feud Closes $1.5B Hedge Fund

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Two hedge fund titans are in engaged in a vicious legal spat that has forced them to shutter their once-highflying $1.5 billion commodities fund, Catequil Asset Management.


And while the closing of a large hedge fund is fairly commonplace, the closing of Catequil is unusual because the partners are turning away from at least $30 million in fees annually over personal differences.


Robert Ellis is suing his former partner Paul Touradji, claiming that Mr. Touradji misappropriated almost $1 million from the hedge fund – by among other things, putting his girlfriend and parents on the payroll – according to court documents obtained by The New York Sun.


In a letter to investors, the fund said it will return 50% of their money on November 1 and the rest of it on December 1, pending the conclusion of an audit.


The genesis of the problem, according to Mr. Ellis’s claim, was a long-simmering dispute between the two founders over Mr. Touradji’s “abusive” management style, especially toward subordinates.


Mr. Ellis claims that Mr. Touradji was so abusive that the New York State Department of Labor waived an eligibility rule for an ex-employee who quit, and ruled her eligible for unemployment benefits. Traditionally, employees are eligible for unemployment compensation only when they have been laid off.


Mr. Ellis’s lawyer did not return a phone call. Mr. Touradji did not return a call seeking comment.


Both Messrs. Ellis and Touradji came from Julian Robertson’s Tiger Capital Management, launching Catequil in 2000, after Tiger shut down.


Tiger is revered as a legendary training ground for hedge fund managers, having peaked at $24 billion under management in the late 1990s. Funds run by its alumni are called “Tiger cubs.” Tiger alumni tend to buy unusually large stakes in companies in which they invest.


For example, Catequil had so much Robusta coffee that when it began to sell its investments last week, the price of coffee dropped 10% in London on October 20.


Catequil was considered unique among commodities trading hedge funds because its portfolio managers tended to do a lot of legwork – such as reportedly checking weather patterns to research the wheat market – as opposed to using expensive computer models.


Mr. Ellis’s claim said he began negotiations to leave the fund in July. Soon after the discussions failed, according to the claim, Mr. Touradji began “freezing out” Mr. Ellis from management decisions and allegedly instructed employees “not to communicate or follow instruction from Mr. Ellis.”


Additionally, Mr. Touradji allegedly made unspecified “false statements” about Mr. Ellis’s contribution to profitability and status at the fund to investors, according to the claim. On one occasion, this allegedly included “soliciting fund investors to invest in a future fund to be run by Mr. Touradji,” which the claim termed a breach of his fiduciary duties.


The complaint accuses Mr. Touradji of shifting expenses from his portfolio to Mr.E llis’s to decrease Mr. Ellis’s returns.


The claim also said that Mr. Touradji put his girlfriend and his parents on Catequil’s payroll, paying them $700,000 out of the fund’s employment compensation account. The filing said Mr. Touradji authorized a $250,000 loan from the fund to an unnamed relative. The claim said Mr. Ellis, despite being a 50% owner of the fund, was unaware of both of these transactions.


Mr. Ellis is has asked the court to rule that he has equal limited partnership interest in Catequil and equal right to the fund’s profits.


Mr. Touradji is also alleged to have misused his corporate American Express credit card. After discovering fraudulent expenses, according to the claim, Mr. Touradji contested certain purchases and cancelled the card, but not before allegedly expensing all of the charges to the company.


The feuding partners are leaving a lot of money on the table. Charging investors 2% of assets and 23% of all returns, the fund was earning at least $30 million before performance fees kicked in. Moreover, expenses were probably fairly low, as the fund had only 10 employees, according to Mr. Ellis’s claim. The fund refused to release performance figures, although in a June interview with a trade publication, Risk Magazine, Mr. Touradji acknowledged having turned away over $1 billion of prospective capital.


The New York Sun

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