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Excessive Leverage

Myron Scholes is once again unable to keep his promise to investors to provide them with liquidity.

Saijel Kishan: Platinum Grove Asset Management LP, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October. The decline left Platinum Grove Contingent Master fund with a 38 percent loss this year through Oct. 15, according to investors. Funds employing a similar approach of exploiting differences in the value of related securities fell 14 percent last month and 30 percent this year, according to data compiled by Chicago-based Hedge Fund Research Inc.

The suspension is necessary given current market conditions,'' Ryebrook, New York-based Platinum Grove said in an e-mailed statement today.Platinum Grove will use this period to consult with its investors and counterparties, determine their future intentions and manage the assets of the fund accordingly.''... A surge of investor redemptions forced firms such as Blue Mountain Capital Management LLC and Deephaven Capital Management LLC to freeze funds to stem the tide of withdrawals...