Fritz Hollings Wants His Money Back

Embattled hedge fund manager Kenneth Lipper has more to worry about than piquing the wrath of celebrity investors like Julia Roberts and Matt Lauer -- he's got a U.S. senator breathing down his neck.

The trustee of Sen. Ernst "Fritz" Hollings' blind trust is suing Lipper over the collapse of Lipper's onetime $4 billion hedge fund business, seeking to recoup the $116,000 the trust allegedly stands to lose on its investment. The senator also is suing PricewaterhouseCoopers, the big accounting firm that audited the books for Lipper & Co.

Hollings, a South Carolina Democrat who unsuccessfully ran for president in 1984 and is the ranking minority member on the Senate Commerce Committee, has been an investor in the Lipper Convertibles fund -- the biggest of Lipper's three hedge funds -- since 1993.

In the most recent election cycle, the Center for Responsive Politics reports that Lipper & Co. gave $21,000 to Hollings political campaign -- ranking them within the senator's top 20 donors.

Reduced Returns

At one point, the Hollings' trust investment in the Lipper fund was valued at $622,504. But by the time Lipper announced early last year that the fund suddenly had lost 40% of its value, the senator's investment was whittled down to $319,650. It's not known how much Hollings initially invested in the Lipper fund.

The lawsuit, filed in a South Carolina federal court, claims Lipper not only misled Hollings and other investors about the declining value of their investments, but gave preferential treatment to several investors in the fund, including New York Daily News publisher Mort Zuckerman and some of Lipper's own family members.

The Hollings lawsuit filed on Jan. 3 is the latest turn in a Wall Street soap opera that once again illustrates the high-risk game of sinking money into a hedge fund -- loosely regulated investment vehicles that cater mainly to the rich.

At a time when dozens of hedge funds are going out of business, there has been no more spectacular collapse than that of the Lipper funds. A New York state judge currently is overseeing the liquidation of the hedge fund, which last February suddenly reported losing $315 million in its main convertible bond fund.