Did Financier Tied to Barney Frank Secretly Control 'Woman-Owned' Hedge Fund?

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Sussman photoA liberal financier at the center of two congressional ethics controversies may also be involved in some questionable business dealings, according to the New York Times. S. Donald Sussman, a billionaire hedge-fund titan, made news after his fiancé, Rep. Chellie Pingree (D-ME), was accused of traveling on his private jet to campaign events.

Rep. Barney Frank (D-MA) has also been scrutinized for traveling to Sussman's Virgin Islands mansion on the billionaire's plane. Republicans have said the trip had the appearance of impropriety, since Frank serves as chair of the House Finance Committee and a company owned by Sussman has received $200 million in federal bailout money.

But a recent lawsuit that Sussman brought against Paamco suggests that the billionaire may have also been involved in fraudulent business practices. The suit claims that a hedge-fund firm primarily bankrolled by Sussman may have been falsely portraying itself as a "women-owned business" in order to receive special benefits.

Judge Richard J. Sullivan, who heard the case, ruled that Sussman's relationship with the Pacific Alternative Asset Management Company (Paamco) "may have been designed to mislead a number of observers, from the tax authorities to the S.E.C. to entities wishing to invest in women-owned businesses."

Paamco was long thought to be run by Jane Buchan, but a lawsuit filed against the firm by Sussman alleges that he contributed much of the early financing. Sussman reportedly paid $2 million for a 40 percent ownership stake in the firm in 2000, while Buchan and her three partners invested a total of $10,000.

Shortly after Sussman's initial contribution, Buchan allegedly asked him to convert the $2 million to a loan instead of a stake in the firm, so that Paamco could hide its connection to Sussman from investors and outside authorities.

Paamco told the Times that its relationship with Sussman was not designed to mislead anyone, and an attorney for Sussman said that the hedge-fund managers "relied on their own counsel and advisers" to approve the deal. But Times reporter Julie Creswell noted that "[F]rom the start, Paamco trumpeted the fact that it was run by Ms. [Jane] Buchan, one of only a handful of women who have made a big mark in the mostly male world of hedge funds."

Sussman filed the lawsuit in order to convert his original loan back to a 40 percent share in the firm, and the court has ruled in his favor.

The Paamco case isn't the first time that Sussman's business practices have come into question. In 2000, the hedge-fund owner set up a company and established full-time residency in the U.S. Virgin Islands, in order to reduce the amount of income tax that he pays. While Sussman now claims primary residency in Maine with his fiancé Pingree, financial documents from September indicate that he may still be receiving U.S. Virgin Islands tax breaks.

Frank and Pingree have both been critics of tax havens, even while they have accepted gifts and contributions from Sussman.

Other politicians and organizations that Sussman has contributed to, including the Center for American Progress where he sits on the board, have also been vocal opponents of tax havens.

Alana Goodman is NLPC's Capitol Hill Reporter.

Related:

Barney Frank’s Ties to Bailed-Out Financier Raising Ethics Questions

Did Rep. Pingree Get Engaged to Beat Ethics Rap?