Highland Capital Management is a Dallas-based hedge fund that has a history of getting into legal scuffles with former employees. One such tiff was with ex-portfolio manager Patrick Daugherty, who was sued by Highland president James Dondero after Daughtery testified on behalf of Dondero's ex-wife Becky during their divorce proceedings, claiming that over drinks, his then-boss told him he planned to "get his net worth down and pay her as little as possible." In the suit, Dondero alleged that Daughtery made the story up to get back at Dondero/Highland for compensation that was never paid out, in addition to alleging that that Daugherty suffered from brain damage.

Now, Highland/Dondero are fighting a former PM named Joshua Terry, who wants to go to arbitration over, he says, being unfairly fired. The firm has said that actually, he was fired for cause, and those causes were:

• Instructing "a Highland lawyer to suspend distributions from a fund he managed," which would have "triggered the fund to be unwound and would have allowed Terry to make an early withdrawal of $700,000 he had invested in it"
• Simultaneously telling a client to dump another $16 million in the fund, "a clear conflict of interest"
• Having sexual relations with underlings
• Talking smack about Highland executives

According to Terry, though, the real reason he was let go was because he raised questions about Dondero allegedly:

• Wanting to "use money due to outside investors...to buy a South American company that he intended to convert into a condom manufacturer"
• Telling Terry money owed to investors would be paid off before the SEC suspected anything
• Calling investors "jackasses" and saying "I don't have a lot of sensitivity towards them"

Also!

He alleges in his filing that Dondero has experienced financial trouble, including margin calls and delinquent personal tax payments, over the past several years. Dondero has needed to use his extensive gun collection as collateral for personal bank loans, Terry says.

Fired Highland Capital Manager Says He Opposed Self-Dealing [Bloomberg]