Jefferies Financial Group, the main creditor of hedge fund Weiss Multi-Strategy Advisers, which went bust in April after over 40 years of trading, says the fund should claw back about $30m that it paid employees just before filing for bankruptcy, according to a report by Bloomberg.
At a bankruptcy court hearing on Tuesday, Jefferies said the bonuses were wrongly paid when Weiss was already insolvent, and that the cash should have been used to pay down debt owed to the bank.
A Weiss lawyer responded by claiming that the bonuses were standard compensation for employees and necessary because at the time the firm was trying to secure a rescue deal with Millennium Management, which ultimately fell through.
If Weiss does not seek to recover the funds, Jefferies could ask the judge for permission to try to retrieve the money itself.
In the hearing, Jefferies also demanded that Weiss’s current executives be removed, alleging that the Chapter 11 case was filed in “bad faith.” The Judge rejected the bank’s request to turn the hedge fund, and control of the case, over to a court-approved trustee for immediate liquidation, but added that Jefferies could pursue such a move at a later date.
According to court records, Weiss, which filed for bankruptcy on 29 April, about two months after the hedge fund told investors it was shuttering and returning capital, owes various Jefferies’ affiliates about $100m.
As part of the bankruptcy proceedings, Weiss is seeking to recover $20m it alleges was wrongly paid to Jefferies over other creditors, or was obtained under the threat of litigation, allegations Jefferies has denied.
