James Dondero Can Manage The Hell Out Of A Hedge Fund AND Own His Turncoat Former Partner/Soon-To-Be-Ex-Wife's Star Witness Without Breaking A Sweat: Press Release

James Dondero is the founder and CEO of Highland Capital Management, a Dallas-based hedge fund. In addition to his duties at the firm, a portion of Dondero's time is currently being spent on two legal matters. One is his divorce from Becky Dondero, who he's been battling in court for over two years. The second is his lawsuit against former Highland PM Patrick Daugherty, who the firm described as a "megalomaniacal" manager known for engaging in "abusive tirades" that "dehumanized employees." Perhaps coincidentally, the suit against Daugherty was filed two weeks after he testified on behalf of Becky Dondero, claiming that over drinks, James told him of a plan to "get his net worth down and pay [Becky] as little as possible." Daughtery also alleged that Dondero asked him to lie on the stand, and to try remember a time when Daughtery regarded Becky as "a whore."

Anyway, it wouldn't be too crazy to think that all of this might be slightly distracting to Dondero and occupy at least a small portion of the attention he might otherwise devote to his day job at Highland. Even Jimmy recognizes that it's a reasonable assumption to make. But, he assures you, it is an incorrect one. Rather, Dondero can expend unlimited energy on both making investors top dollar AND making sure his estranged spouse gets nada while at the same time making his sworn enemy look ridiculous. The reason we know this is that Highland has released a nearly 1,000-word press release saying as much.

DALLAS, Nov. 20, 2013 /PRNewswire/ -- Highland Capital Management, L.P. ("Highland") today issued this statement for the purpose of correcting misinformation recently disseminated by the press regarding the legal proceedings of James Dondero, Highland's Co-founder and President, and Highland.

Neither Mr. Dondero's divorce trial, nor the case with Patrick Daugherty has any bearing on Highland's ongoing business. These disputes are separate and distinct from its day-to-day business. As always, Mr. Dondero and the rest of the Highland team are focused on improving already strong fund performance.

While the divorce proceeding is a private matter, inaccurate news coverage of the trial necessitates clarification of the following:

1. Mr. Dondero has always sought to have the prenuptial agreement enforced. Becky Dondero is the only party who at any time attempted to invalidate the prenuptial agreement.

2. The trial was limited solely to the questions of whether Ms. Dondero sought to invalidate the agreement and whether she was entitled to any damages for Mr. Dondero's alleged breaches.

3. Ms. Dondero's demands over two years of negotiation varied between four and eight times the amounts stipulated in the prenuptial agreement and culminated in her filing 11 separate motions to invalidate the prenuptial agreement for the purpose of establishing community property. Each of those motions was denied.

4. The jury agreed that Ms. Dondero repeatedly attempted to nullify the prenuptial agreement and that she should not receive damages on her claims that Mr. Dondero breached the agreement.

5. Mr. Dondero never hid assets and never stated that he had any plans to do so.

No evidence or testimony in the trial suggested anything salacious, illicit or improper on the part of Mr. Dondero. The only unusual aspect of the trial was the active participation of Mr. Daugherty, a disgruntled former Highland employee who voluntarily resigned over two years ago, and who is engaged in a contentious legal dispute with Mr. Dondero and Highland.
Mr. Daugherty was in the courtroom the entire first day, most of the second day and testified on behalf of Ms. Dondero on the third afternoon. Based on observations of those in the courtroom, he worked closely with Ms. Dondero's legal team in jury selection and conferred with them throughout the trial. His courtroom testimony was confused, bitter and largely irrelevant. Indeed, when questioned regarding his knowledge of the primary issue in the case, the prenuptial agreement, he vaguely offered: "I think he [Mr. Dondero] talked to me about certain aspects of it. He never really talked to me about it. 'I want to talk to you about the premarital agreement,' he [Mr. Dondero] never said that. We just talked about aspects of the prenatal agreement. Did I say prenatal? I'm sorry. Premarital agreement."

At one point while he was on the witness stand, Mr. Daugherty asked: "Can you please repeat the question? I flashed out there for a moment."

A New York Post article that appeared mere hours after Mr. Daugherty's testimony, we believe, was the result of Mr. Daugherty's collusion with Ms. Dondero to promulgate inaccurate information to the Post during the trial. It has since been confirmed that Ms. Dondero did, in fact, communicate with the Post regarding the divorce trial. Additionally, much of the purported testimony in the Post article did not occur at the trial. In fact, there were no reporters present in the courtroom.

In regards to the ongoing dispute with Mr. Daugherty, the following constitutes recent substantive developments in the litigation between Highland and Mr. Daugherty.

1. The basis for Mr. Daugherty's voluntary resignation from Highland in September 2011 was his unreasonable compensation demands, which the firm refused to meet.

2. In a recent hearing, while the vast majority of Mr. Daugherty's claims were dismissed, the court denied Mr. Daugherty's attempts to dismiss any of Highland's claims.

3. Notably, the recent order dismissing Mr. Daugherty's claims came after he hastily dropped his defamation claims against Highland and Mr. Dondero as they related to his neurological condition when required by the court to provide his medical records.

4. After 18 months of litigation, in a seemingly desperate attempt to maintain his suit against Highland and Mr. Dondero, Mr. Daugherty asked the court last week to allow him to introduce new claims, notwithstanding the fact that discovery had closed and the court's deadline to bring new claims had long since passed. Mr. Daugherty, in fact, is seeking to add these new claims despite already having deposed and/or contacted over 200 employees, former employees and clients of Highland.

5. After badgering current employees, and engaging in other inappropriate conduct, Mr. Daugherty was ordered not to contact any Highland employees for the duration of the case.

Neither Mr. Dondero's divorce trial, nor the case with Mr. Daugherty has any bearing on Highland's ongoing business. These disputes are separate and distinct from its day-to-day business. As always, Mr. Dondero and the rest of the Highland team are focused on improving already strong fund performance. The firm's retail funds, NexPoint Credit Strategies Fund (NHF), Highland Floating Rate Opportunities Fund (HFRZX), Highland Global Allocation Fund (HCOZX), Highland Long/Short Equity Fund (HEOZX) and Highland Long/Short Healthcare Fund (HHCZX), are among the leaders in the industry and many of the firm's institutional funds are among the strongest performers in their segments.

Thank you, and good night.

Highland Capital Management Responds to the Dissemination of Misinformation Regarding Pending Legal Matters [PRN via Dallas Observer]