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James Dondero, Highland Capital's Giraffe-Eating Hedge Fund Manager, is in a Helluva Legal Fight

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Update on June 4 at 1:45 p.m.: If this post had you wondering, "This James Dondero sounds like a badass, but what kind of music does he like?" Daniel Hopkins will satisfy your curiosity at DC9 at Night. Short answer: Steve Winwood.

Original post: To catch you up in case you haven't been paying attention, James Dondero, who owns the 72nd most expensive house in Dallas, eats giraffe jerky, and once stood next to George W. Bush, is the co-founder of Highland Capital Management, a $20 billion hedge fund and private equity firm headquartered here.

The firm has been sued by various investors, including the Houston Municipal Employees Pension System and Jay-Z. But since its portfolio tanked in 2007 during the financial crisis, Dondero has managed to steer it back to ridiculous profitability.

The same can't be said for his personal life. Dondero is in the midst of a messy divorce that made headlines in March when Dondero claimed he couldn't pay spousal support because he is insolvent, despite his $36 million annual income.

During the trial, Patrick Daugherty, Highland's former private equity chief, testified that Dondero had told him he was purposely minimizing his assets to avoid giving money to his wife. Days later, Highland sued Daugherty for breach of contract, calling him a "megalomaniac" who was "unmanageable, erratic and insubordinate" who went on abusive tirades and dehumanized employees.

Which brings us to the counterclaim that Daugherty filed last week and which was reported by Forbes this morning.

The suit accuses Dondero of self-dealings and conflicts of interest, and much of its 62 pages dwells on Highland's financial transactions in the midst of the financial crisis, using terms like "daily liquidity crisis," "margin arrangements," and "return swap arrangements"

That's when things turn salacious. Shortly after Daugherty resigned in September 2011, Dondero proffered an olive branch, and the men met for drinks at Nicola's.

"Life is too short for it to be anything but a pleasant exchange between two battle-hardened warriors." Dondero is quoted in the counterclaim as saying.

Almost immediately, Dondero launched into a discussion of his wife's infidelity and the infidelity of other wives at the company, though he told Daugherty not to worry: His own wife was faithful.

Dondero then offered, as evidence of his wife's unfaithfulness to their marrieage, about 20 pages of emails and text messages between his wife and her alleged lover. He explained to Daugherty that he had spent about three sleepless days reading about 20,000 emails and texts raided from various tracking sources he had through his connections with certain branches of intelligence community. Dondero explained that the emails and texts covered every communication his wife had over their five year marriage. He also mentioned that he had used sources that were illegal in order to obtain the information and had committed about 20,000 misdemeanors in the process.

A few months later, the men again met at Nicola's for drinks, and Dondero again launched into a tirade about his wife.

Dondero explained to Daugherty how evil his wife was and why he was determined to pay her nothing in the divorce. Daugherty advised Dondero to pay his wife the $5 million stipulated in their prenuptial agreement because she would always be the mother of his children and would have primary custody of them. Daugherty also advised Dondero that it wasn't good for the kids to see their father disparaging their mother in public as a "whore." Dondero said he was leery about the cost of litigation, but was following his lawyer's advice that 'if his wife got all the money up front, it would be too easy to just leave the kids with a nanny and go party in Aspen.

Which makes Dondero sound like a) he pre-gamed pretty hard and b) he's the evil mastermind at the end of the Bond movie who takes just enough time detailing his plan for world-domination to doom it. It's hard to believe that anyone would actually say that. Then again, this is a guy who brags about eating giraffe jerky.

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