26/06/2008

A cold Westerly for Windmill and SageCrest

A US hedge fund manager facing a lawsuit for blocking withdrawals is now being accused by one of its long-standing investors of “siphoning off” money.

Greenwich-based Windmill Management, which runs the SageCrest II hedge fund that specialises in loans for art, property and personal injury lawsuits, was sued last week by Westerly Capital on behalf of other investors in its first fund.

Westerly is suing Windmill and its principals for misrepresenting the value of its main investments, including an investment in oil and gas producer Global Minerals, and another investment in lime processing company Global Lime, and for not providing proper information to investors.

Specifically, Westerly alleges Windmill lost more than $12m on its Coastal Minerals investment, while Global Lime went bankrupt, prompting a loss of more than $6m. It also alleges that because of the initial overvaluation of investments, Windmill principal Richard Weyand received a greater controlling share of SageCrest II than he should have, which limited the amount SageCrest shareholders were entitled to in SageCrest II.

The suit further alleges that SageCrest did not provide timely or accurate audited financial statements, did not appropriately provide investors with proper valuations or returns, did not provide adequate transfer arrangements to SageCrest II and failed to provide requested funds when SageCrest was liquidated.

Windmill’s other two principals, brothers Alan and Philip Milton, are also named in the latest suit.

Windmill wound down SageCrest in 2002 and created SageCrest II, a separate hedge fund purportedly focused on fixed-income strategies. Westerly is seeking $8.8m for SageCrest investors, plus damages and repayment of its own investment.

The suit follows a separate claim by Wood Creek Capital Management and Wood Creek Multi-Asset Fund, who earlier this month sued Windmill and SageCrest II to get back $5m they say they were promised over a year ago.

Windmill and SageCrest’s legal wrangling goes back even further than that, however. The Levy Family Limited Partnership, an investor in the original SageCrest hedge fund now known as LLYNK, sued the firm in 2002 for misrepresenting the book value of several of its investments and for both failing and refusing to provide accurate, timely and honest information.