This Hedge Fund vs. Ex-Employee Lawsuit HAS EVERYTHING

Sexual relations with subordinates, deals to turn South American companies into condom factories, gun collections as collateral, AND MORE.
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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.

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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]

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As some of you may recall, back in March, Highland Capital Management founder and CEO James Dondero testified that he is "insolvent under Texas family law, if not according to normal accounting rules," despite a 2010 tax return showing his adjusted gross income that year to be in excess of $36 million. The reason his finances were in question was because Dondero filed for divorce in September, and how much he owes his wife Becky is currently in dispute. Becky is "seeking enforcement of a prenuptial agreement guaranteeing her half of the couple’s community property, capped at $5 million," plus "spousal support and interim attorney fees." James, perhaps you can glean, is hoping it will be less than that and perhaps even nothing. One thing that really didn't help? Patrick Daugherty, a former senior portfolio manager at Highland who quit in October, testified that he met with James Dondero for drinks last month. “He told me his plan was to get his net worth down and pay her as little as possible,” said Daugherty, who was called to the stand by Becky Dondero. That testimony was given on March 28th. On April 11, this happened: Highland Capital Management, the $20 billion hedge fund and private equity firm based in Dallas, has launched a lawsuit that calls its former private equity investing chief a “megalomaniacal” manager who engaged in “abusive tirades” that “dehumanized employees.” Patrick Daugherty is the former head of stressed special situations and private equity at Highland Capital Management, where he was responsible for $8 billion of assets until he resigned in September 2011. Known as a blunt-speaking Texan, Daugherty has served on the board of Metro-Goldwyn-Mayer and as chairman of companies like Cornerstone Health Group. According to a 14-page complaint Highland filed in Texas state court in Dallas earlier in April, Daugherty has been paid in excess of $26 million while at the firm, but voluntarily resigned after “Highland refused to accede to his unacceptable ultimatums and megalomaniacal demands regarding compensation.” The lawsuit claims that Daugherty was “belligerent to peers” and that Highland employees complained and even quit after Daugherty publicly berated them as “‘f—ing idiots’” and disparaged them using other vulgarities. Highland, which has a reputation in the investment community for using hard-hitting tactics, pulls no punches in a lawsuit that at times can appear cruel. It claims that Daugherty’s tenure at Highland was characterized by extreme behavior and his performance diminished over the years as he “became increasingly unmanageable, erratic, and insubordinate.” It didn't have to be this way, Patrick! $20 Billion Highland Capital Calls Former Private Equity Chief "Megalomaniacal" [Forbes]

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Highland Capital CEO James Dondero knows what we're talking about. Highland Capital Management LP Chief Executive Officer James Dondero testified in a divorce proceeding that he’s insolvent under Texas family law, if not according to normal accounting rules. Dondero, 49, told Texas state court Judge David Lopez in Dallas yesterday that the 2008 financial crisis took his debt- investing firm “to a state of insolvency and we’ve been juggling liquidity since that.” Highland Capital assets under management fell to $23 billion by Jan. 1 from $39 billion at the end of 2007. “The last three, four years have been negative to the tune of hundreds of millions of dollars,” Dondero said. The money manager said his annual income is “a million, two.” [...] Highland Capital Management LP Chief Executive Officer James Dondero testified in a divorce proceeding that he’s insolvent under Texas family law, if not according to normal accounting rules. Dondero, 49, told Texas state court Judge David Lopez in Dallas yesterday that the 2008 financial crisis took his debt- investing firm “to a state of insolvency and we’ve been juggling liquidity since that.” Highland Capital assets under management fell to $23 billion by Jan. 1 from $39 billion at the end of 2007. “The last three, four years have been negative to the tune of hundreds of millions of dollars,” Dondero said. The money manager said his annual income is “a million, two.” Highland Capital Chief Tells Divorce Judge He’s Insolvent [Bloomberg]