Investors try to force Lisle-based Ritchie hedge fund into bankruptcy

Investors in a failed hedge fund run by Ritchie Capital Management LLC want to force the fund into bankruptcy and investigate possible mismanagement and fraud in the wake of the fund's collapse.

The investors filed an involuntary Chapter 11 petition Wednesday with the U.S. Bankruptcy Court in Chicago, accusing Lisle-based Ritchie Capital of keeping them in the dark about the sale of the fund's assets and the management of its portfolio.

"Its behavior in the face of investor inquiries has become increasingly suspicious." They said in court papers. "The secrecy must now end."

The move by the investors, themselves hedge funds, is the latest blow for Ritchie Capital, which put two investment vehicles into bankruptcy protection in June.

In a statement, Ritchie Capital said the bankruptcy petition was "unjustified and without merit" and it has shared "all relevant information" requested by the investor group.

"Ritchie Capital believes the filing is a transparent publicity stunt designed to obtain an advantage over fellow investors," it said.

The investors -- Benchmark Plus Partners LLC, Benchmark Plus Institutional Partners LLC and Sterling Low Volatility Fund QP -- said in court papers they expect "to lose millions."

Jeff Marwil, an attorney for the three funds, said some of their investments have been recovered but they still are owed a remaining $46 million. Other investors are owed more than $100 million, he said.

Ritchie Capital moved to liquidate the fund -- Ritchie Multi-Strategy Global LLC -- at the end of 2006 after poor performance that led investors to demand their money back. Investor redemptions were halted in September 2006.

In April, Ritchie sold the fund's investment portfolio and the portfolio of a sister fund to Reservoir Capital Group for $285 million to be paid in stages, according to court documents. Investors approved the deal.

As part of the sale, Reservoir assumed more than half of Ritchie Capital's deferred compensation. Ritchie Capital also continues to manage the funds' portfolios, which the investor group said creates an "obvious conflict of interest."