AsianInvestor recently reported on the legal filing made in Delaware by Carl Icahn's hedge fund, ACF Master Trust, in its role as an investor in Steel Partners II, a hedge fund managed by Warren Lichtenstein.

In a nutshell, ACF was complaining about the plans to convert the fund into a publicly quoted company and now wants its money back.

Now, Steel Partners has shot back, filing its opposition to the plaintiff's motion for expedited proceedings. In layman's language, ACF had asked for the case to come to trial before the reorganisation (due in the second quarter), whereas Steel Partners wants to proceed with its plans and to head to court later.

Steel Partners contends that "Carl Icahn is looking for a scapegoat for what amounts to an approximately five million dollar devaluation of an investment", and, while still maintaining a $10 million investment, is interfering with a transaction for a fund that holds $1 billion in assets. It says that Icahn has not been able to state a viable claim to show that the fund has been mismanaged in any way. Icahn could not be reached for comment.

The legal pleading goes on to say that the losses in the Steel Partners II fund are less than those in Icahn's own public investment entity, Icahn Enterprises LP, which it says fell 74% from January to November 2008.It also claims that this showing might be due to a self-dealing transaction in which Carl Icahn sold interests in various hedge funds at a price that appears excessive. Steel Partners also speculates that ACF is under-funded and Carl Icahn may be liable personally for that shortfall.

As with the ACF filing, this one also takes pot shots back at the gentleman in opposition, saying: "As with all matters involving Icahn, it is probable that nothing is as it seems. Indeed defendants suspect that this lawsuit and push for expedited proceedings is just another move in Icahn's effort to obtain special treatment and/or a greater level of control over a portfolio."

Steel Partner's defence hinges on its fund documents: its memorandum and articles of association and its private placement memorandum (PPM). It argues that its planned reorganisation is permissible within the terms of these documents. Steel Partners also points out that even though the contents of these documents was vital to the case, the plaintiff had not submitted them with its filing. Steel Partners also contends that this case has nothing to do with the State of Delaware - presumably construing that there is some forum-shopping afoot, and so asks the court to consider whether it has a role at all to play.

Additionally, Steel Partners says that the reorganisation is designed to give liquidity to those investors who desire it, and that its acts do not demonstrate a "colourable threat of irreparable harm" to the plaintiffs. It goes on to say that the subscription agreement executed by the plaintiff stipulated that the plaintiff was a "sophisticated and wealthy investor, which can afford to hold its investment for an indefinite length of time". In actual fact, a 36-month lock up for the ACF funds had just expired in late-2008.

One of the ACF complaints was that illiquid investments were not supposed to constitute more than 25% of the fund. Currently it exceeds that number. Steel Partners says the fund's documents actually state that this ceiling applies to deals (for example, special situations) only as defined at the time of their purchase. What seems to have happened here is that formerly liquid positions have migrated into the illiquid bucket by virtue of the credit crisis.

On the personal side, the Steel Partners filing states that Warren Lichtenstein himself is not subject to personal jurisdiction for any of the ACF claims.

A spokesman for Steel Partners was visiting Tokyo last week. He told AsianInvestor that he has been asked by their investors in Japan if there are any plans to reorganise the Steel Partner's Japan fund along similar lines. He says there are none.