Steel Partners' investors allege "fraud"

[Joanne98]

Investors in the Warren Lichtenstein-managed Steel Partners say they have been the victims of a ‘bait and switch’ in the reorganisation of the hedge fund.

Steel Partners has been a formidable name in the hedge fund world in recent years. However, the activist fund now finds itself in a precarious position.

AsianInvestor has seen a copy of a State of Delaware legal filing that on January 13, 2009 was filed by Bank of America in its role as the master trustee of ACF Master Trust. The defendants include Steel Partners and Warren Lichtenstein, who manages the fund.

The legal pleading makes for uncomfortable reading. Steel Partners lost 43% of its assets in the first 11 months of 2008. As a result, 38% of investors asked to redeem.

Warren Lichtenstein then wrote to investors on New Year’s Eve. Even though the fund had promised not to invest more than 25% in illiquids, the letter declared that its “illiquid and in many cases control positions make it difficult and in some cases impossible to sell assets and businesses quickly”.

The letter went on in a style described in the legal filing as, "part marketing gibberish and filled with what are meant to be motivational titbits…quoting a rhyme…‘Life is full of stumbling blocks or stepping stones. It all depends on which you choose, one you win and one you lose’.”

So the investors found themselves well and truly on the other side of the looking glass. They were not getting their money back.

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http://www.asianinvestor.net/article.aspx?CIaNID=94540

[Joanne98]

1. Top ten short plays for January...

One of the heavily shorted tech stocks is EarthLink (ELNK), the Internet service provider, with a short ratio of 19, which means that it would take approximately 19 days for the short-sellers to cover their positions. The company will announce its 2008 full-year results on Feb. 5. It will record a noncash impairment charge of $80 million to $90 million in its fourth quarter ended Dec. 31, 2008, due to its 2006 acquisition of New Edge Networks. The stock has a very good P/E of 5.5, much better than the average P/E of 10 for the diversified telecommunications services industry. Unfortunately, it doesn't pay a dividend.

EarthLink is owned by Steel Partners, a San Francisco-based activist hedge fund managed by Warren Lichtenstein. It looks for companies trading at a discount to intrinsic value, with the goal of being either the largest or one of the largest shareholders so as to influence the direction of the company. It also holds Rowan Companies (RDC), with a short ratio of 2.7, a P/E of 3 and a yield of 2.6%, along with stocks that don't pay a dividend: Adaptec (ADPT), with a short ratio of 5 and a P/E of 42, and Conseco (CNO), with a short ratio of 4.9 and a forward P/E of 4.

http://www.stockpickr.com/problog/1328/