Major law firm Akin Gump Strauss Hauer & Feld is facing a massive $4.4 billion claim from two former hedge fund manager clients. Is this a warning from the highly lucrative hedge fund operators who pay big fees but bite hard when things are seen to go wrong.

Major law firm Akin Gump Strauss Hauer & Feld is facing a massive $4.4 billion claim from two former hedge fund manager clients. Is this a warning from the highly lucrative hedge fund operators who pay big fees but bite hard when things are seen to go wrong.

Like most hedge fund managers, James McBride and Kevin Larson expected to make a tidy sum. By the fall of 2003, they seemed well on their way. The series of Veras funds they had launched less than two years before had already attracted around $1 billion in investments.

But then regulators, including then-New York state Attorney General Eliot Spitzer and the Securities and Exchange Commission, came after the Veras funds for “late trading,” the illegal purchasing of mutual fund shares after the 4 p.m. market close. Veras wound up paying more than $36 million in penalties before shutting down. McBride and Larson each paid $750,000 and were barred from the industry.

But the ex-fund managers are still out for big money, this time from the law firm they claim advised them that late trading was legal. In February, the former hedge fund managers filed suit against Akin Gump Strauss Hauer & Feld in Manhattan Supreme Court.

Their damages claim? A whopping $4.4 billion, not including punitive damages.

Akin Gump has denounced the suit.

“The allegations of wrongdoing in Veras’ Complaint are without merit. At all times, Akin Gump acted ethically and in its client’s best interests,” said firm spokeswoman Kristen White. “Akin Gump is forcefully defending this case, and we are confident we will prevail.”

The suit illustrates the risks law firms face as they try to reap the rewards of representing private investment funds, including hedge funds and private equity funds. Such funds generate high legal bills for firms, but they are apt to strike back hard when they feel lawyers have led them astray.

In addition to the Veras suit against Akin Gump, top private equity firm Thomas H. Lee has sued Mayer, Brown, Rowe & Maw for $245 million for allegedly misrepresenting the financial shape of commodities brokerage Refco prior to Lee’s acquisition of a controlling interest. Seward & Kissel is also a defendant in a $200 million lawsuit brought by institutional investors who lost money when one of the law firm’s hedge fund clients went under.

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