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By Tom Polansek
CHICAGO (Reuters) - Henry Jarecki, one of the world's most prominent gold bugs, is a celebrated advocate of free markets with a legendary record in precious metals trading. But this week he became a target of a lawsuit by a young trader who alleges that Jarecki owes him at least $1 million (0.60 million pounds) as a share of profits from a new gold trading strategy he has developed.
The lawsuit filed on Tuesday in federal court in New York by trader Steven Lee claims that Jarecki, founder and chairman of the $15 billion commodities firm Gresham Investment Management, used his programme to make profits on investments totalling as much as $400 million.
Jarecki, 81, does not dispute that Lee's trading programme worked. Rather, Jarecki says, he did not make nearly as much money from it as Lee contends.
Lee's arbitrage strategy yielded a small profit of about $1,000 to $2,000 for every $1 million invested, Jarecki said. The strategy did so by finding differences in prices between precious metals trading funds and the metals themselves.
The $400 million figure cited in the lawsuit was "just beyond my imagination," Jarecki told Reuters in an interview on Thursday.
The lawsuit, which refers to Jarecki as "modern-day Croesus, one of the richest men on the planet," gives an insight into the backroom discussions and business deals in the world of fund managers and traders.
Lee claims in the lawsuit that he had a verbal agreement with Jarecki on how to divvy up the profits from his trading strategy. When Lee asked how much he would be paid, Christopher Harrison, a lawyer and advisor to Jarecki, promised there would be "plenty of money to go around," according to court documents.
Harrison did not return a call for comment.
Jarecki took steps to convince Lee he would be included on the team implementing Gresham's trading, the lawsuit alleges. As an example, Lee says in the suit, Jarecki showed him his townhouse in Gramercy Park in Manhattan and said he was planning to transform a small room there into a trading office for Lee.
Jarecki said he had tried to pay Lee between $20,000 and $30,000--enough to compensate him for the trading idea and a share of profits from trades. The problem, he said, is that Lee stopped coming to the office and responding to phone calls.
"It was as if he had disappeared," he said.
Lee could not be reached for comment by Reuters and a representative for his lawyer, Robert Wisniewski, said he would have no comment.
In suing Jarecki, Lee is taking on a legendary trader who has been an outspoken advocate of free markets and of the effectiveness of precious metals investment funds.
Jarecki rose to prominence in international metals markets during the 1970s and 1980s as a leader of Mocatta Group, then the world's largest gold and silver trading company.
Over four decades in the commodities business, Jarecki has served as a director of the Chicago Board of Trade and Chicago Mercantile Exchange and formed Brody White, an international commodities brokerage, which he sold to Societe Generale in 1995.
(Reporting by Tom Polansek; Editing by Tomasz Janowski)