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Stephen Harmelin, newly appointed receiver ad litem of Philadelphia Alternative Asset Management, wants to settle the long drawn out litigation against Man Financial as soon as possible. The PAAM hedge fund collapsed because of fraud. Harmelin's predecessor C. Clark Hodgson Jr. had been trying to recover a sizable amount of the hedge fund's losses from Man Financial, PAAM’s broker. A potential settlement of the case may have encouraged Man Group to announce its proposed initial public offering of Man Financial for the third quarter.Earlier this month, Judge Michael Baylson appointed Stephen Harmelin, managing partner of Philadelphia-based Dilworth Paxson, as receiver ad litem to cover specific aspects of the complex PAAM case. Harmelin's role involves litigation against Man.
Judge Baylson removed Hodgson as receiver on the grounds of alleged conflict of interest. This conflict relates to Hodgson's previous work for UBS, the parent company of PAAM's administrator UBS Fund Services (Caymans) Ltd. The decision arose as Man's lawyers pulled in UBS as a co-defendant alongside Man in the battle against the receiver.
The judge ruled that potential conflict of interest could place Man at an unfair disadvantage in the case and delay proceedings. Hodgson can continue to act as receiver in other matters regarding PAAM. But since he is no longer involved in the Man and UBS litigation, the judge is now hoping that the lengthy case will be settled swiftly.
As a first step, parties in the civil action, Stephen J Harmelin Receiver Ad Litem versus Man Financial, will hold a series of conferences in late June to advance the settlement process. The court will meet with the receiver on June 25, UBS on June 28, Man Financial and Thomas Gilmartin (the senior employee directly responsible for PAAM) on June 29, and other defendants on July 2. The parties will submit memoranda. The trial is booked for September 17.
Background: MF Global's subsidiary, Man Financial, and seven of the company's employees are accused of aiding Philadelphia Alternative principal's Paul Eustace's in failing to disclose trading losses and artificially inflated the fund's value.
In its SEC filing, MF Global said the receiver of Philadelphia Alternative Asset Management is seeking damages of at least $175 million. The Commodity Futures Trading Commission (CFTC) shut Philadelphia Alternative Asset Management in 2005. Man said it expects that it will be fined by the CFTC in connection with the case.
