Hedge Fund Manger Files Whistleblower Lawsuit Blames Carlyle Group For Almost $2B of Investor Money

In his whistleblower lawsuit, ex-hedge fund manager Nikhil Dhir claims that the Carlyle Group fired him for complaining that the global asset management group’s executives had allowed close to $2B of investment funds to shrink to less than $50M without notifying account administrators. The Carlyle Group disputes his accusations.

According to the complaint, Dhir was initially hired by a company called Vermillion as an energy portfolio manager for the Viridian Fund. The fund was supposed to concentrate on trading derivatives, physical commodities, and stock options in the soft commodities, metal, freight, and energy industries.

When the Carlyle Group purchased a 55% stake in Vermillion, Dhir became a Carlyle employee, while the Viridian Fund was marketed as a diversified investment fund with low volatility and the promise that no more than 30% of the portfolio ever would be allocated toward just one commodity.

The fund invested in freight position four years ago. According to Dhir, between ’12 and ’14, the percentage of the Viridian Fund that went to freight reached over 90%. Yet, said Dhir’s lawyer, the fund’s partners continued to tell investors and the portfolio manager that the position was liquid and there would be “minimal market impact” if it were to be exited.

By the fall of 2014, noted the attorney, it was obvious that the investment was a losing proposition and investors would be best served by getting out of freight. Yet the Carlyle Group and its fund partners purportedly kept investors’ money in the fund, while the latter were reassured that staying in freight was the right investment decision. Dhir, in his complaint, argued that the partners did this so investors would continue to pay fees to them.

He also contends that when he aired his concerns at a meeting, the partners said that it was to their benefit allow the fund to go down to zero rather than lose the fees they were getting paid. Hedge fund managers allegedly were told that they would be fired if they told customers about the risks. The, the hedge fund partners, purportedly worried that Dhir would turn whistleblower, allegedly fired him on the day he was supposed to get his bonus for his sold work performance. Dhir had generated $11.5M in profits in 2014.

He believes that his termination was retaliation for pointing out that the company was allegedly engaged in wrongdoing. He said that his firing violates the Dodd-Frank Act and the Sarbanes-Oxley Act. Whir is seeking punitive and compensatory damages. He is claiming breach of contract, wrongful discharge, and fraud.

Dhir’s case is now before the U.S. District Court in the District of Connecticut. Meantime, the Carlyle Group has said that Dhir’s lawsuit is “frivolous” and that it had been dismissed with prejudice by the U.S. Department of Labor.

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Carlyle Accused of Fraud by Ex-Employee, Chief Investment Officer, February 11, 2016

Sarbanes-Oxley Act of 2002 (PDF)

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (PDF)