NEW YORK - In a ruling yesterday, a bankruptcy judge again refused to limit potential damages that the Appaloosa hedge fund may be forced to pay in a fraud lawsuit brought by auto supplier Delphi Corp.
Appaloosa Management LP led a group of investors to inject as much as $2.55 billion into Delphi in exchange for stock.
But the investors withdrew from the deal in April and Delphi sued the following month.
Delphi lawyers argued that as early as November or December of last year, Appaloosa began to tell other investors that the deal to buy shares was "a poor investment," and that the hedge fund agreed to the deal to "obtain substantial commitment fees."
David Tepper, who heads Appaloosa, testified in court in December, 2007, that he intended to complete the deal, which Delphi lawyers say amounted to fraud because his intentions may have been the opposite.
U.S. Bankruptcy Judge Robert Drain said in August that Appaloosa may be more exposed to fraud charges than other investors because of Mr. Tepper's testimony.
Delphi lawyers contended that the Appaloosa-led group tried to get lenders to withdraw commitments for $6.1 billion in exit financing, money Delphi needed to close the deal.
The auto supplier also said that the actions of Appaloosa before the hedge fund withdrew from the deal led to short-selling of Delphi shares.
Like Appaloosa, two other hedge fund investors - Harbinger Capital Partners Master Fund I Ltd. and Pardus Capital Management LP - created shell companies for the deal.
Judge Drain had dismissed some charges against the Harbinger and Pardus parent companies in his previous ruling, but he refused to do the same with Appaloosa.
He affirmed that decision yesterday, again rejecting Appaloosa's argument that it should not pay more than $250 million, a cap it says was set in the original contract.