Report: Carlyle faces lawsuit over listed fund failure

Former US Republican congressman Michael Huffington lost $20m when Carlyle Capital Corp went under in March last year and alleges the buyout firm misrepresented the fund’s risk profile.

Michael Huffington, a former US Republican congressman, has reportedly filed a lawsuit against buyout giant The Carlyle Group alleging that the firm misrepresented the risks associated with its listed mortgage bond affiliate, Carlyle Capital Corporation.

Huffington lost his entire $20 million investment in the vehicle when it folded in March 2008 and now alleges that Carlyle had represented the fund as “conservative” and “low risk”, according to a report in the New York-based newspaper, The Wall Street Journal.

Euronext Amsterdam-listed Carlyle Capital’s portfolio had consisted of US government agency AAA-rated residential mortgage-backed securities. As the portfolio devalued amid the credit crunch, the vehicle was unable to keep up with margin calls. During the last seven days of its trading in March last year, the company received margin calls in excess of $400 million and was subsequently liquidated.

Huffington claimed that following the fund’s collapse Carlyle co-founder David Rubenstein visited him in person to apologise and assured him that he would make his money back, said the report. Carlyle offered Huffington, along with other investors in the defunct vehicle, fee-free access to Carlyle’s other funds.

Carlyle declined to comment.