Court Dismisses Pension Lawsuit Against Highland Capital

(October 24, 2011) — A lawsuit brought against Highland Capital Management by the Houston Municipal Employees Pension System has been dismissed by a Delaware court.

“No compensation in any form has passed directly or indirectly from any of the defendants to the plaintiff or the plaintiff’s attorneys in connection with the dismissal of this lawsuit, and no promise to give any such compensation has been made,” according to a statement released by the Dallas-based investment adviser, which manages about $24 billion. “In a past statement, Highland stated that the lawsuit was meritless and would be dismissed. The firm also stated that this action was an attempt to create financial leverage for one party’s benefit at the expense of all other investors in the Highland Crusader Fund and to derail an investor-led mediation process. That effort failed, as the investor-led process produced a plan of distribution which was approved by approximately 86% of investors.”

The $1.9 billion Houston Municipal Employees Pension System sued hedge fund operator Highland Capital Management in May, along with JPMorgan Chase, over the shut Highland CrusaderFund, which was set up to invest in distressed corporate debt. The suit, filed in Delaware Chancery court, alleged that Highland, the largest hedge fund manager in Texas, and the Crusader Fund failed to guard investors while it collapsed, freezing investor withdrawals while protecting its own hedge fund network.

The Crusader Fund “was harmed by virtue of being stuck with poor quality assets that it would not have had if the partnership had been managed in the best interests of the partnership and its limited partners,” lawyers for the pension plan said in the complaint filed in Delaware Chancery Court.

In a release following the dismissal of the suit, the firm stated: “Highland is pleased to put this matter behind it and continues to work in the best interest of all investors and execute the approved distribution plan for Highland Crusader Fund.”

The case number is 6510-CS in the Court of Chancery of the State of Delaware.