Ritchie declares two units bankrupt

Ritchie Capital, a Chicago-based hedge fund, yesterday filed for bankruptcy for a pair of life insurance units that lost $700 million in policies, published reports said. The funds, Ritchie Capital I and Ritchie Capital II, both based in Dublin, Ireland, filed for reorganization in New York bankruptcy court, Financial News said. The fund’s creditors are owed more than $371 million. The hedge fund initially bought the policies in 2005 from Coventry First LLC, a life settlement provider that is already facing legal action. Former New York State Attorney General Eliot Spitzer sued Coventry in 2006, alleging that the company used illegal bidding practices to defraud life insurance policy sellers. Last month, Ritchie sued Coventry in federal court, seeking damages of $700 million, and alleging fraud, breach of fiduciary duty, breach of contract and fraudulent inducement. In the meantime Ritchie’s senior lender, ABN AMRO, which is already owed $436.5 million, will provide debtor-in-possession financing to Ritchie I, Financial News said. In a letter to investors, Ritchie warned that there was a possibility the funds will not recover the cost of the policies, Reuters said. Ritchie has held a fire sale of its assets to make up for its lagging performance. Most recently, the firm closed a $1 billion deal with Reservoir Capital Group in April, selling “a significant portion” of its multi-strategy fund’s holdings.