Investors File Involuntary Chapter 11 Bankruptcy Case Against Ritchie Hedge Fund

CHICAGO, Dec. 27 /PRNewswire/ — An involuntary Chapter 11 Bankruptcy case was filed yesterday in the Bankruptcy Court for the Northern District of Illinois by investors in a domestic hedge fund managed by Ritchie Capital Management (“RCM”) and, in conjunction therewith, the investors filed a motion under Bankruptcy Rule 2004 seeking to investigate allegations of mismanagement, self-dealing and fraud. The involuntary bankruptcy case was brought by investor creditors holding aggregate claims exceeding $45 million, seeking to investigate whether RCM, as the manager of a domestic multi-strategy hedge fund (the “Hedge Fund”) (1) violated Federal law, (2) engaged in improper self-dealing transactions, and (3) breached its management agreement with the Hedge Fund.

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The Hedge Fund that is the subject of the involuntary proceeding, Ritchie Multi-Strategy Global, LLC, is in what appears to be the final stages of liquidation. Investors in the Hedge Fund were advised in September 2006 that redemption of investments would be delayed indefinitely while RCM worked to wind down and sell the Hedge Fund’s portfolio. As a result, a group of the largest investors in the Hedge Fund and in a related offshore hedge fund also managed by RCM (the “Offshore Fund”), including the Petitioning Creditors in the involuntary filing, formed an Investors Committee to monitor the wind down of the Hedge Fund and the Offshore Fund (collectively, the “Funds”). In April 2007, RCM completed a transaction for the Funds pursuant to which much of the combined portfolio was sold to Rhone Holdings II, Ltd., an affiliate of Reservoir Capital Partners. Completion of the Rhone transaction left the Funds with cash and a purchase price account receivable from Rhone, as well as certain assets excluded from the transaction. RCM continues to manage the portfolio sold to Rhone.

The Investors Committee members consented to the Rhone transaction and, thereafter, requested from the Funds and RCM detailed information about RCM’s financial dealings with the Funds. “RCM’s management of the portfolio for Rhone and, at the same time, its obligation to enforce the Funds’ rights against Rhone and the portfolio, including with respect to the purchase price account receivable, creates an inherent and actual conflict of interest. This obvious conflict, when combined with RCM’s utter refusal to provide any financial information about RCM’s dealings with the Funds, left the investors no choice but to seek Court supervision of the investors’ investigation,” said the Investors’ counsel, Jeff Marwil, a partner and Co-Chair of the Restructuring and Insolvency Group at Winston & Strawn LLP.

As a result, the Petitioning Creditors commenced the involuntary bankruptcy case in order to insure that RCM has not and does not misuse its control of the Funds to the economic detriment of investors. “The involuntary filing and discovery request is necessitated by the combination of the utter lack of transparency to investors in the Funds’ dealings with RCM, and RCM’s exclusive and complete control over the business and financial affairs of the Funds,” said Marwil.

The actual, existing conflict of interest between RCM and the Funds, and RCM’s refusal to provide meaningful information to investors, appears to have led to the involuntary filing and the 2004 discovery motion in order to investigate RCM and its dealings with the Funds and, if appropriate, to pursue claims and causes of action against RCM, and perhaps others.

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Winston & Strawn LLP

CONTACT: Jeff Marwil, Partner, +1-312-543-2303, jmarwil@winston.com, orLisa Sachdev, Public Relations Manager, +1-312-558-5844, lsachdev@winston.com,both of Winston & Strawn LLP

Web site: http://www.winston.com/