Grant & Eisenhofer filed a lawsuit this week against Highland Capital and two of its hedge funds on behalf of institutional and individual investors, according to a Grant & Eisenhofer release.

The Boston-based institutional investor LV Highland Credit Feeder Fund, along with the group of individual investors, alleged that Dallas-based Highland Capital fraudulently misled them regarding a hedge fund’s financial state before it started to wind down and sell off assets beginning last October.

The investors alleged that Highland Capital made deceiving reassurances regarding large amounts of money that other investors were withdrawing from the funds, which induced the investors to maintain their positions and to invest further between 2007 and 2008.

The investors also argued that the two divisions of JPMorgan & Chase that administered the fund and which were named as defendants — JPMorgan Investor Services and JPMorgan Hedge Fund Services (Bermuda) — failed to provide correct monthly statements of the two funds.

The complaint for the case states that plaintiffs decided to hold their investment instead of redeeming it before June 30 last year and to invest more capital into the funds after June 30 as a result of false net asset value figures of the two funds created and distributed by JPMorgan.

Plaintiffs also alleged that the funds’ February 2009 distribution plan to liquidate the assets of the two funds seeks to give preferential treatment to investors who sought to redeem their investments before June 30, 2008.

Meanwhile, investors who did not seek to redeem their interests or submitted redemption requests after this date would receive a disproportionately smaller percentage of the funds’ liquidated value.

The two hedge funds in dispute were heavily weighted in structured credit instruments whose value plunged dramatically after the subprime market collapse.

This alleged deceit will cause the investors’ $50 million total position to be worth a fraction of this after the funds’ assets liquidate.

The plaintiffs seek to recover a full return of investments or monetary damages resulting from the fraudulent representations.

They also seek a declaratory judgment from the court that the contracts and law governing the funds require a pro rata distribution of the assets of the funds to all investors, as originally announced by the defendants.

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