Corporate bonds issued by The McClatchy Co. of Sacramento have become the central issue in an unusual lawsuit involving a hedge fund and the Royal Canadian Mounted Police pension system.
Canada’s Public Sector Pension Investment board filed a lawsuit Friday accusing a New York hedge fund of artificially depressing the price of McClatchy bonds in an effort to cheat the pension board. It said the manipulation generated a “substantial loss.”
While the lawsuit against Saba Capital Management is making waves on Wall Street, McClatchy is something of a bystander. The alleged price manipulation “has no impact on McClatchy at all,” McClatchy Chief Financial Officer Elaine Lintecum said Monday. She wouldn’t comment on the case itself. McClatchy owns The Sacramento Bee and 28 other newspapers.
The $112 billion Canadian pension board invests retirement funds for the Mounties and several other Canadian government agencies.
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Starting in early 2012, it invested $500 million with Saba, which is run by well known financier Boaz Weinstein.
According to the suit, pension fund officials notified Saba earlier this year that they were going to cash out of the investment. Saba then rigged up “a drastic and inappropriate one-time markdown” of the value of its McClatchy bonds, which constituted a significant portion of the Saba portfolio, according to the lawsuit. That meant the Canadian fund cashed out for less money, the suit said.
A month later, “after accomplishing their illicit objective of shortchanging the Pension Board,” executives with Saba raised the price back up in an effort to keep other investors from defecting, the suit said. The suit was filed in New York State Supreme Court, that state’s trial-level court.
McClatchy owes a total of $956 million in bond debt. The pension fund’s lawsuit doesn’t specify which bonds are at the heart of the lawsuit or in what amounts. Weinstein, in a statement to the Wall Street Journal over the weekend, said the dispute represents “a difference in value of less than $12 million.” He said the allegations are “completely false.”
A spokesman for the pension fund couldn’t be reached for comment.