Two Dublin-based hedge fund companies have applied for bankruptcy protection in New York with accumulated losses of $811 million.
The two companies, Ritchie Risk-Linked Strategies Trading (Ireland) and Ritchie Risk-Linked Strategies Trading (Ireland) II listed debt of $811 million, but didn't list their accumulated assets.
The two companies were designed to buy life insurance policies risk for a larger hedge fund controlled by former American football star, Thane Ritchie.
His hedge fund company, Ritchie Capital Management, owns at least one other Irish company Ritchie Risk-Linked Strategies Trading (Ireland) III, which last year changed its name to Ritchie Risk-Link Strategies IV, according to Company Registration Office documents in Dublin.
The parent company, Ritchie Capital Management, is now suing the sellers of the insurance policy risk to the Dublin companies, claiming fraud.
Jeff Marwil, a Chicago-based lawyer who represents the nine largest investors in the fund, told The Irish Times that bankruptcy would be the best way for Thane investors to recover some of their money without having to wait for the outcome of the lawsuit.
Mr Marwil said that the Dublin funds were part of a much larger hedge fund, so that the situation was not as bad as it may initially seems.
He said investors already recovered from other parts of the Ritchie hedge fund that had been sold off.
Ritchie Capital is now locked in bitter legal dispute with Coventry First LLC, its partner in the insurance investments.
It accused Coventry of hiding a government investigation into fraud against policyholders before the two companies purchased policies that effectively amounted to calculated bets that insurance payouts would exceed insurance premium revenue.
The two Dublin companies bought risk on accumulated life insurance premiums on old people, betting that the old people would die early so that the companies could collect on their life insurance premiums.
Mr Marwil said that having the two Dublin companies declare bankruptcy would allow investors to sell off assets "free and clear" without getting embroiled in the dispute with Coventry.
He added that a "slew" of legal documents had been filed this week and that he was confident that the bankruptcy declaration should not take a long time.
"The hedge fund market has a very high tolerance for risk. You have to remember that these are subsidiary companies and that the Ritchie fund was pretty well diversified.
"There is a bigger picture here," he said.
The bankruptcy will also help the companies to organise $436 million it owes to ABN Amro financial group.
Hedge funds are often highly idiosyncratic investment vehicles that allow much more freedom to investment managers than mutual funds.
While investment profit from successful hedge funds can be much great than those of mutual funds, a number of recent cases has caused widespread speculation that investors are starting to shy away and that US government regulation may not be far behind.
Last year, Amaranth Advisors LLC, lost $6.6 billion on natural gas bets, emphasising the wide range of market betting schemes involved in some hedge funds.
