business

Nearly two dozen investment funds, including a handful managed by Whitebox Advisors of Minneapolis, filed a federal lawsuit this week accusing a Georgia-based subprime lender of fraudulently transferring millions of dollars in assets to company insiders and shareholders at the expense of its debt holders as the company nears insolvency.

The lawsuit, filed Monday in U.S. District Court in Minneapolis, cited CompuCredit Holdings Corp.'s recent regulatory filings as evidence it is "hemorrhaging cash" and facing a liquidity crisis that raise doubts about its ability to make debt payments barring an "extreme, unexpected and immediate improvement'' in operations.

Yet, according to the lawsuit, CompuCredit recently announced it was departing from its policy of not paying stock dividends by declaring a dividend of 50 cents a share payable early next year.

"The announced dividend flies in the face of the company's staggering ongoing losses, its acknowledgement of the dire credit environment in which it is operating, and its stated goal of preserving capital to shore up its operations," the suit says. It says the dividend "will result in the stripping of almost $25 million of the company's rapidly dwindling assets, with over half of that amount going to corporate insiders."

The investment funds say CompuCredit is trying to force its debt holders to convert the outstanding debts at a discount by demonstrating the company has no intent to pay them.

To drive home the message, they say, CompuCredit announced recently that it's considering a tax-free spin-off of its U.S. and U.K. micro-loan businesses into a publicly traded company called Purpose Financial Holdings Inc. The lawsuit says the company's proposal would excise the only segment of CompuCredit's business that had been producing cash -- more than $100 million in annual revenue.

While CompuCredit is based in Atlanta, it has an office in St. Cloud and does substantial business in Minnesota. CompuCredit is owned primarily by CEO David Hanna, his brother Frank and other corporate insiders, the suit says.

"We feel that there's no merit to these allegations, and that's the extent of our comment at this time," said Denise Harrod, vice president of CompuCredit corporate affairs.

Among the many plaintiffs are funds managed by Whitebox Advisors, including Pandora Select Advisors, Whitebox Combined Advisors, Whitebox Convertible Arbitrage Advisors and Whitebox Hedged High Yield Advisors. Collectively, they have $28.1 million invested in CompuCredit notes. Whitebox was founded by Andrew Redleaf of Minneapolis. The firm declined to comment on the lawsuit Tuesday.

The other plaintiffs include Akanthos Capital Management, Galileo Partners Fund I and Kingstown Partners, of Delaware; Aria Opportunity Fund, Parsoon Opportunity Fund, Tenor Opportunity Master Fund, AQR Absolute Return Master Account, CNH CA Master Account, CC Arbitrage, GLG Market Neutral, Highbridge International, Kamunting Street Master Fund and KBC Financial Products, of the Cayman Islands; and GLG Investments, GLG Global and GLG Investments IV, of Ireland.

Together, the suit says, the plaintiffs hold $197 million in CompuCredit notes. U.S. Bank services the notes through its offices in Minnesota, the suit says.

The lawsuit says CompuCredit has about $390 million in notes outstanding, with $231.5 million due to be repurchased by the company in May 2012 at par. The company reported Nov. 9 in its quarterly filings with the U.S. Securities and Exchange Commission, that it may not be in the position to repay those notes on time.

The plaintiffs seek injunctions barring CompuCredit from proceeding with the dividend payments, spinning off the microloan business or transferring assets without court approval. A hearing was scheduled for 1:30 p.m. Tuesday before U.S. District Judge James Rosenbaum in Minneapolis on the plaintiffs' motions for a temporary restraining order, preliminary injunction and expedited discovery.

Dan Browning • 612-673-4493