Funds News

UPDATE 1-Lehman subpoenas hedge funds Greenlight, SAC

* Lehman seeks information on fund activities

* Attorneys investigating possible ‘illegal activity’

(Adds Goldman declines to comment)

NEW YORK, April 19 (Reuters) - Lehman Brothers Holdings Inc LEHMQ.PK wants to investigate David Einhorn's Greenlight Capital, Steven Cohen's SAC Capital Advisors and other hedge funds over whether they took improper actions that damaged Lehman's business ahead of its collapse, court documents show.

On Friday, attorneys for Lehman Brothers filed notices of subpoena for hedge funds Greenlight, SAC, Citadel Investment Group, Och-Ziff Capital Management and Goldman Sachs & Co GS.N, seeking access to documents and employees to conduct an investigation.

The attorneys at Kasowitz, Benson, Torres & Friedman LLP, were hired as “special counsel” by Lehman Brothers in January to investigate whether certain “third parties” made “statements that interfered with, and damaged (Lehman’s) business.” They are also investigating whether any “illegal activity” occurred.

The subpoenas filed by Kasowitz Benson on Friday are the first formal step to obtaining more information from the funds that could potentially be used to build a legal case against them. Funds generated by any lawsuit would be used to repay Lehman’s creditors.

Einhorn publicly discussed his fund’s short position in Lehman stock as early as April 2008, fewer than six months before the investment bank collapsed into the largest bankruptcy in U.S. history on Sept. 15, 2008.

His concerns about Lehman’s accounting, were strongly contested by Lehman staff, who accused him of “cherry picking” items from Lehman’s quarterly filing and distorting them.

Similar concerns about Lehman’s accounting policies were recently brought up in a report from the court-appointed examiner charged with investigating Lehman’s collapse.

According to documents recently revealed in Lehman’s examiner’s report, a Lehman employee emailed staff at the U.S. Securities and Exchange Commission in June 2008 to complain that “3 hedge funds are collaborating” to fuel false information and rumors that were destructive to the firm. The letter did not name the funds it referenced.

Greenlight Capital, Och-Ziff, Goldman and Citadel declined to comment. A representative for SAC was not immediately available.

The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555. (Reporting by Emily Chasan; editing by Andre Grenon)