Jim Chanos, the short seller who made his name and fortune with the downfall of Enron Corp., was sued by a partner who accused him of embezzling company funds for his personal gain and enriching his girlfriend in the process.
Conlon Holdings, which invested in Chanos & Co. in 2020, claims he used his firm, formerly known as Kynikos Associates, as a “piggy bank.” Chanos, who denies the allegations, closed his hedge funds at the end of last year after nearly four decades.
The lawsuit, filed in New York state court over the weekend, concerns $10 million in outstanding loans Chanos borrowed from his firm over more than a decade. Conlon claimed Chanos “never intended to repay the firm, but instead used his power as a general partner to bankrupt the firm, reap the tax benefits of his financial machinations, and leave his partners empty-handed.”
The lawsuit also alleges that Chanos sold his luxury Miami condo – owned by Chanos & Co. – earlier this month for $17.8 million without informing his partners.
Chanos’ girlfriend, Crystal Conners, acted as a sales representative on the deal, which would have earned her $540,000 at a normal commission rate, the lawsuit says.
“In other words, Chanos not only sold the company’s property, but did so in a manner that allowed him to pay his girlfriend more than half a million dollars in money that did not belong to him,” the lawsuit states.
Conners did not immediately respond to messages seeking comment.
“Puzzling and unfounded”
In an interview, Chanos, 66, called the lawsuit “puzzling and baseless,” adding: “The facts will show that the company’s internal loan in question was repaid in 2021.”
Conlon, a Chicago-based firm led by Sean Conlon, alleged that Chanos attempted to reclassify capital contributions to the company as loan payments.
Brian Nichols, Chanos’ former chief financial officer, said in an affidavit filed with the lawsuit that his boss admitted on his 2022 tax return that the loan was still outstanding.
Conlon Holdings is seeking an injunction preventing Chanos from remitting the proceeds from the sale of the Miami condo, his removal as general partner of his firm and the appointment of a temporary receiver.
Chanos reached the height of his fame when he shorted Enron in 2000, when the stock was a Wall Street darling. In the second half of 2001, revelations of accounting fraud sent investors fleeing, leading to the company’s bankruptcy. Chanos emerged from the collapse as a star in the investment world.
In recent years, his investments have been less successful. A short position on Tesla Inc. went bankrupt, and Chanos announced last year that he was winding down his fund, which at the time had less than $200 million (down from about $8 billion in 2008).