Ex-controller charged with embezzling from Connecticut hedge fund

Reuters News
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Posted: Oct 29, 2014 8:15 PM

(Reuters) - The former controller of Contrarian Capital Management LLC was arrested on Wednesday and charged with embezzling millions of dollars from the Greenwich, Connecticut-based hedge fund firm, federal prosecutors said.

Lawrence Herzing, 45, who lives in Greenwich, was accused of improperly wiring money from his employer to accounts he controlled at least 32 times between 2004 and 2013.

According to court papers, the wire transfer instructions "did not correspond to any legitimate payments or investments necessary to Contrarian Capital's business."

The papers refer to two specific transfers in August 2013 totaling $2.41 million, that supposedly went to a partnership account owned by Herzing and his former wife.

Herzing embezzled about $12 million from Contrarian, but current and former clients will bear no losses or costs resulting from his activity, a person familiar with the matter said.

Contrarian oversees about $3.9 billion of assets, Barron's newspaper estimated in May.

Herzing was charged with one count of wire fraud, which carries a maximum 20-year prison term, according to a statement from U.S. Attorney Deirdre Daly in Connecticut.

The defendant appeared at a hearing in the federal court in Bridgeport, Connecticut. He was released on $5.6 million bond, of which $2.6 million is secured by his Greenwich home.

A federal public defender who represented Herzing at the hearing did not immediately respond to a request for comment.

Contrarian, in a statement, said: “Upon discovery that a former employee misappropriated funds, Contrarian immediately commenced a review with outside advisors, reported the matter to the authorities, and is cooperating fully with their investigation. The management company has made full reimbursement and has taken prompt action to enhance our internal processes."

Founded in 1995, Contrarian specializes in so-called "distressed" investing, focusing on such areas as bank debt, bonds, debt backed by real estate, trade claims, and "rescue" financing.

The case is U.S. v. Herzing, U.S. District Court, District of Connecticut.

(Reporting by Jonathan Stempel and Nate Raymond; Editing by Lisa Shumaker)