HSUS v. Manchester Capital Management, 2010 Lawsuit

This document is a federal fraud lawsuit filed on December 2, 2010 by the Humane Society of the United States. HSUS sued the Vermont-based Manchester Asset Management and its principal officer, Bayard R. Kraft III.

According to HSUS’s lawsuit, in late 2008 Manchester sold it a $15 million stake in a Cayman Islands-based vehicle called the “Equinox Alternative Offshore Fund L.P.” HSUS claims it made its investment in two stages, giving Manchester $10 million in October 2008, and then adding an additional $5 million a month later at Manchester’s suggestion.

During the month of October 2008 alone, the Equinox fund lost 4.8% of its value, costing HSUS $480,000 of the first $10 million it invested.

HSUS’s lawsuit contends that while it intended to make its final $5 million investment effective on November 1, Manchester instead “backdated” that investment to October 1—costing HSUS an additional $240,000 in “retroactive” losses.

The HSUS would not have incurred the $24 0,000 loss allocated to it on or about November 1, 2 008 had Manchester not backdated The HSUS’s additional $5.0 million capital contribution to October 1, 2008. If Manchester had treated The HSUS’s additional contribution as “at risk” and thus subject to profit or loss on November 1, 2008, The HSUS’s additional contribution would not have been subject to any losses resulting from Equinox’s investments during October 2008.

The lawsuit doesn’t address any reasons why HSUS would knowingly invest the second $5 million—regardless of which month it was to be made official—in a fund where it had already lost $480,000 of its contributors’ money.

Nor does it indicate why HSUS had $15 million in cash available for investment in the Caymans, when its own Bylaws require that:

All available funds of the Society shall be used for the immediate relief of suffering and the vigorous prosecution of humane education except as otherwise provided by law or the specific terms of a gift or mandate of a donor.

The lawsuit does, however, suggest that HSUS may have other capital investments with Manchester in addition to the Equinox fund:

Manchester receives a quarterly fee based on the value of all assets invested by The HSUS through Manchester, including all assets invested in Equinox.