Investors expand lawsuit against failed hedge funds Grifphon and Sasquatch, accounting firm Perkins

When Yusaf Jawed put $200,000 down on a penthouse condo in The John Ross building, he didn't use his own money, his investment clients allege.

The money manager used money from one of his hedge funds, according to an amended lawsuit filed against him by investors. He then accounted for it as a fund investment worth $450,000.

That asset is now worthless, the lawsuit alleges. The fund never finished buying the condo on Portland's South Waterfront, and Jawed forfeited the earnest money. He also defaulted on paying an electrical contractor $39,000 for its high-end sound system, the complaint says.

Those details are among the new allegations found in an amended complaint filed late Thursday in Multnomah County Circuit Court. In it, nearly 60 investors of Grifphon Asset Management in Lake Oswego and Sasquatch Capital in Portland allege the failed hedge funds amounted to a 13-year Ponzi scheme that defrauded them of $14 million.

The expanded lawsuit also takes aim at

, a major Portland accounting firm, for its work with the failed funds.

Michael Esler, a Portland attorney representing the investors, said the losses likely impact more investors and exceed $40 million.

Sasquatch and Grifphon initially set its minimum investment at $100,000, a requirement to maintain their status as a loosely regulated hedge fund. (The theory being that big-dollar investors know how to protect themselves and don't need as much of a government safety net.) But the hedge fund managers accepted investments of far less money -- as little as $10,000 -- on multiple occasions, the lawsuit alleges.

"They were taking money from people who really never belonged in hedge funds in the first place," Esler said.

The Federal Bureau of Investigation,

and

opened investigations.

, the lawsuit as amended names Jawed, his former colleague Lyman Bruhn, Perkins and accountants Fred Williams and Hoang Nguyen as defendants. It also names Bruhn's wife, Sheila.

Bruhn declined through his publicly appointed defense attorney on Friday to comment. Attorneys for Jawed, Perkins, Williams and Nguyen did not return e-mails seeking comment. Officials at Perkins did not return e-mails.

Bruhn and Jawed

in 1999 with Tim Cremere, who has since died. Cremere left in 2001, the same year Jawed left to launch Grifphon.

The lawsuit accuses Jawed and Bruhn of violating state securities laws and breaching their fiduciary duty to put investor financial interests ahead of their own. It accuses Perkins and its accountants of malpractice and aiding in the fiduciary breach.

It alleges the defendants misled investors about Jawed's regulatory and legal history, the funds' poor returns and accusations among insiders that money was being misused.

Among the new allegations:

Perkins & Co. knew in 2001 that Bruhn, Cremere and Jawed had accused each other of misspending investor money.

In a December 2001 e-mail copied to a Perkins' accountant, Cremere resigned from Sasquatch, claiming Bruhn had paid himself a salary of $350,000 in 2000, taken out $60,000 in loans that weren't repaid and used a company credit card for $500 advances in Las Vegas.

Perkins' Williams brokered a settlement between Jawed, Bruhn and Cremere in which each agreed to repay one-third of the $245,000 they had misappropriated from Sasquatch, the complaint alleges. Those repayments were eventually halted, according to an e-mail Williams and Perkins received.

Perkins prepared tax information for investors with inflated investment values and fictitious income.

Grifphon bought bonds from Sasquatch at one-third their face value, then logged them at a much higher value on Grifphon's books. By 2008, Grifphon stated the value of these Sasquatch bonds at $5 million.

In internal memos, Jawed in 2004 and 2006 characterized Grifphon's financial state as "horrid" and a "total disaster" and tried to raise more than $20 million from investors to cover for it.

Perkins and Williams failed to tell investors the firm had withdrawn from representing Sasquatch and Grifphon because the funds kept poor records and could not verify the existence of assets.

Grifphon created fictitious investments, including undocumented loans to Bruhn, Jawed and Cremere and "Ponderosa Bonds" valued at $7.1 million that appear to be a sham.

A few investors who complained enough were able to get money out "because Jawed and Bruhn needed to avoid negative publicity and regulatory attention in order to keep the Ponzi scheme afloat," according to the lawsuit. "Those 'redemptions' were paid for by money from new investors."

The amended complaint drops allegations against Daniel Kloucek and Terence Lo, officers and managers of some Grifphon funds, and Jawed's ex-wife, Fernanda DeClerecq.

-- Brent Hunsberger; 503-221-8359;

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