Diamond Lake hedge fund founder Kim sued over $2m in compensation

Dow Kim, a former Merrill Lynch & Co. head of trading and investment banking, was sued over $2m in compensation claimed against the Diamond Lake Investment Group hedge fund venture that he started and dropped.

Namuk Cho, who previously worked as the head of U.S. derivatives trading at UBS AG, said Kim promised him $2m in compensation for his services in 2007, according to the suit filed April 25 in New York state Supreme Court. He said he was terminated in May 2008, days after demanding the money.

Kim, whom the suit cites as making more than $80m at Merrill from 2005 to 2007, left to start Diamond Lake in 2007. In August 2008, he determined he couldn't raise enough money, according to a March 31 appeals court decision that reinstated claims against Kim for breach of contract and unpaid wages. In that case, Karl Wachter, who had been hired to serve as a managing director and general counsel of Diamond Lake, sued Kim over compensation.

"Kim specifically promised Cho $2m as minimum compensation for his 2007 services," according to the new suit. "Cho insisted that his $2m minimum compensation be unconditional and not subject to the launch of Kim's investment funds."

Phone conversation

Cho alleges in the complaint that, in a telephone conversation in August 2007 over the pay, Kim said, "But then it comes out of my pocket!" and added, "You will get your $2m."

Attorney Leo V. Leyva, who represents Kim in the Wachter suit, said yesterday in an interview that he hadn't seen the Cho suit and had no immediate comment.

A settlement conference in a similar federal case is set for April 29. Michael Pasternak said he turned down a job at Morgan Stanley based on representations that Kim made and took a job with Diamond Lake. He was terminated without cause in May 2008, according to the complaint. He's claiming damages of $6m.

According to regulatory records, Cho worked at Diamond Lake in New York from October 2007 to May 2008.

The case is Cho v. Kim, 651089/2011, New York state Supreme Court (Manhattan).

(Published by Bloomberg - April 27, 2011)