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Clinton Group investors have withdrawn $1.8 billion from its hedge funds since word of a high-profile resignation surfaced in late October, dealing a blow to a firm that once ran $9 billion.

The run on withdrawals ends a long, unpleasant chapter in the 12-year history of the firm, which runs six hedge funds and now has a total of $6.7 billion under management.

The firm's hedge funds will begin 2004 with about $2.2 billion in assets under management, according to a letter that was released to investors today, ending weeks of speculation about the damage of the past two months. Clinton's hedge funds had about $5.5 billion at the end of August, and have dropped in value through trading losses and investor withdrawals.

Clinton's last six weeks have been dominated by a dispute over the pricing of its hedge funds' asset-backed securities portfolios, a situation that triggered federal investigations of the firm and ultimately convinced investors to redeem their money on an unusually large scale.

Following a summer of losses in its flagship Trinity Fund and its Clinton Global Fixed Income Fund, two senior executives left the firm, fueling speculation among bond traders that all was not well at the fund group presided over by George Hall.

Trouble boiled over when senior trader Anthony Barkan resigned in October, citing his concerns over Clinton's valuation of its asset-backed securities portfolios.

Clinton executives responded quickly, hiring PricewaterhouseCoopers to investigate its pricing. The

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Securities and Exchange Commission

and the Commodity Futures Trading Commission launched their own investigations, and executives at the firm spent November waiting for the auditor's report, hoping it would clear the Clinton Group name.

But investors stepped up the pace of their redemptions, and the group's flagship Trinity Fund, the Clinton Multi-Strategy Fund and Clinton Global Fixed Income Fund dropped about $400 million during October alone, mostly from investor redemptions, but also from trading losses. The Trinity fund's assets dropped by 29%, ending the month at $530 million. The fund lost 6.4% in value that month, bringing its year-to-date decline to 15.6% by the end of October.

Over the Thanksgiving holiday, Hall and the directors of Clinton's hedge fund business sent letters to investors saying early indications from PricewaterhouseCoopers showed the hedge funds' portfolios to be correctly valued. They also extended the deadline for their quarterly withdrawal period from mid-November to Dec. 1, then again to Monday. Along with the second extension, they offered investors a financial incentive to ride out the storm. The firm said the 5% redemption fees collected from investors wanting out are being reinvested in the fund, rather than going to the firm's coffers. The firm charges redemption fees to investors who have not had their money with the funds for 12 months.

Pricewaterhouse officials declined to comment on why the report Clinton was counting on for exoneration could not be released, saying the firm does not discuss its auditing and accounting work for individual clients. However, a person familiar with the situation said Pricewaterhouse was not conducting a formal audit, and the review was meant to satisfy federal regulatory concerns rather than serve as a formal basis for investment decisions.

While the billions of dollars withdrawn are a punishing blow to Hall's group, the firm is far from through -- it still manages about $4.5 billion in collateralized debt-obligation pools, and its hedge fund balance will be substantial at $2.2 billion.

"I'd say they have brought some stability to the situation," said one investor who is keeping money in the fund.

The letter promised investors it would provide more information about performance and risk analysis, and give regular updates on any major personnel changes.