Short seller Jim Chanos sued by partner alleging misuse of funds

Jim Chanos, the short seller who made his name and fortune on Enron Corp.’s demise, was sued by a partner that accused him of embezzling company funds for his personal use and enriching his girlfriend in the process.

Conlon Holdings, which invested in Chanos & Co. in 2020, claims that he used his firm, previously known as Kynikos Associates, as a “piggy bank.” Chanos, who disputes the claims, closed his hedge funds late last year after almost four decades.

The suit, filed in New York State court over the weekend, involves $10 million of outstanding loans that Chanos borrowed from his company over more than a decade. Conlon alleged that Chanos “never intended on paying the company back, but instead planned on using his power as general partner to run the company into the ground, enjoy the tax benefits of his financial shenanigans, and leave his partners with nothing.”

The suit also alleges that Chanos sold his luxury apartment in Miami — which was owned by Chanos & Co. — for $17.8 million earlier this month without notifying his partners. 

Chanos’ girlfriend, Crystal Conners, acted as the sales agent on the deal, which would have netted her $540,000 at standard commission rates, according to the suit.

“In other words, Chanos not only sold the company’s property but did so in a way that he could pay his girlfriend more than half a million dollars of money that did not belong to him,” the lawsuit alleges.

Conners didn’t immediately reply to messages seeking comment. 

‘Puzzling and baseless’

Chanos, 66, called the lawsuit “puzzling and baseless.” He added: “The facts will show that the internal loan in question from the company was paid off in 2021.” 

Conlon, a Chicago-based firm run by Sean Conlon, alleged that Chanos looked to re-characterize capital contributions to the company as loan payments. 

Brian Nichols, Chanos’ former chief financial officer, said in an affidavit filed along with the suit that his boss acknowledged the loan was still outstanding as part of his 2022 tax return. 

Nichols and Conlon are no longer partners at the firm, Chanos said. “Indeed, all my fellow management company partners have lost money over the past few years, none more than me,” he said, adding that Conlon “is simply trying to mitigate his losses by this crude shakedown attempt.” Chanos said he has put more than $30 million into the company since 2019.

Conlon Holdings is seeking an order restraining Chanos from transferring the proceeds of the Miami apartment sale. It also demands his removal as general partner of his firm and the appointment of a temporary receiver.   

Chanos reached the apex of his fame by shorting Enron in 2000, when the stock was a Wall Street darling. In the second half of 2001, revelations of accounting fraud at the company caused investors to flee, leading to its bankruptcy. Chanos emerged from the collapse as a star in the investment world.

In recent years, his investments were less successful. A short position on Tesla Inc. foundered and Chanos announced last year that he was winding down his funds, which had less than $200 million at the time, down from about $8 billion in 2008.