Hedge fund sued for ‘incomprehensible’ deal

Richard Desmond said he wasn't warned about risks

Richard Desmond, founder of the Northern & Shell Plc media group, sued a Man Group Plc hedge-fund unit for as much as 20 million pounds ($33 million), adding it to a dispute over losses on an investment he said was too complex to understand.

Desmond, whose media empire includes OK! Magazine, the Daily Express newspaper and adult television channels, said GLG Partners LP advised him to enter into a 2007 derivatives transaction with Credit Suisse Group AG as a counterparty, according to the lawsuit filed in London. He invested about 50 million pounds in a product referred to as Constant Proportion Portfolio Insurance, a type of swap.

“It was incomprehensible except to an expert,” Desmond’s lawyers said in court documents made available last week. The 62-year-old said GLG failed to warn him about the risks. He sued Credit Suisse over the deal last year.

Investment firms selling complicated derivatives have faced lawsuits around the world from customers baffled by losses that followed the collapse of Lehman Brothers Holdings Inc. in 2008. In the U.K., thousands of small businesses have sued lenders over interest-rate swaps that turned out to be costly. Last month investors filed a class action against Royal Bank of Scotland Group Plc and Standard & Poor’s for a synthetic debt- linked product that fell as much as 90 percent.

Desmond was a sophisticated investor who benefited from professional advice, GLG said in defense papers filed last month. The hedge fund wasn’t a party to the transaction and didn’t advise Desmond, who independently decided to invest, the firm said.

‘Unpredictable, Unmanageable’

Chris Ryall, a spokesman for London-based Man Group at its external public-relations firm, RLM Finsbury, and Desmond’s spokesman, Sam Bowen, declined to comment.

When Desmond asked for the investment to be unwound during the market turmoil of 2008, he lost about 20 million pounds, he said in the lawsuit. He said GLG didn’t inform him of the risk there would be “unpredicted, unpredictable or unmanageable losses.”

Desmond put about a quarter of his 200 million-pound fortune into the transaction, according to his court filing in the Credit Suisse case. He said he was given a misleading impression of potential returns and told the only risk was that the counterparty went bankrupt.

In October, a judge combined the claims against Zurich- based Credit Suisse and GLG into a single trial scheduled to start in January 2015.

The case is: Richard Clive Desmond & Ors v. Credit Suisse International & Anr, case no. 13-842, High Court of Justice, Queen’s Bench Division.

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