Patrick Evershed has claimed investors in New Star's Property fund lost millions of pounds after the group continued to advertise the fund despite warnings from its property team that prices were over-inflated.
Evershed said in his witness statement lodged with an employment tribunal - which is hearing his claim of constructive unfair dismissal against his old employer - that he had concerns about continued spending by New Star on adverts despite signs of a bubble forming in property.
"I was concerned by the way John was continuing to spend most of the firm's advertising budget on a fund which looked increasingly overvalued to all those in New Star who understood property and the economy," he said.
Evershed said property team members were pressurised by New Star founder John Duffield and Gregor Logan - the group's joint CIO - to keep investing in property despite valuations looking "increasingly fully valued".
The fund grew to "about £2.1bn" before the property crash, according to Evershed, and then fell sharply as a result of the well-publicised property meltdown in the UK.
Evershed said he was concerned many investors lost millions of pounds because the group continued to advertise even as the property market dried up.
"I fear investors could have lost hundreds of millions of pounds as a result of the advertising campaign being maintained when the property fund managers themselves could see no value in the property they were investing in," said Evershed.
Evershed's account of life at New Star has revealed a culture of fear, with allegations that bullying and humiliation of staff was commonplace.
It includes Duffield withdrawing an offer of sweets from managers having a bad period of performance, as well as accounts of him pacing around the office calling managers names.
Evershed said he believed the "much publicised demise of New Star was as a direct result of founder, John Duffield's bullying, his interference with the way in which the fund managers managed their funds and his refusal to take on board anyone's advice."
"He (Duffield) would prowl around the floor on a regular basis with his jaw jutting out and emitting growling sounds and call us "morons" and "criminals".
"He knew how each fund was performing each hour and he would compare our performance against each other in such a way as to cause distress to those who had had a bad hour or day."
Evershed claimed New Star's formal response to his grievances - made via letter in 2009 - saw Duffield admit to offering sweets to managers but deny ever withdrawing them based on fund performance.
Evershed said in his statement that in a career spanning 40 years, he had never experienced such a "poisonous working environment".
"Rather than instill competitiveness amongst fund managers, the humiliation of John's treatment had quite the opposite effect; it destroyed fund managers' morale and their confidence, made them stressed, anxious and fearful of John and subsequently led to their funds' underperformance.
"I do not consider there is any way John's behaviour could properly be considered as banter (as New Star claims it was)."
The Tribunal also heard that the "level of stress and illness [at New Star] was quite exceptional".
During cross-examination, Evershed claimed it was this highly stressful environment that contributed to his fund's poor performance.
He described the atmosphere at work as horrendous and extremely unpleasant, stating it was "so intimidating, so humiliating, so distressing".
Daniel Oudkerk, the lawyer representing New Star, countered Evershed's claims about poor performance by arguing his fund had started to perform badly years earlier.
Oudkerk said: "You said your fund did badly because you were bullied by Duffield, but your fund was starting to do badly in 2006.
"Let's compare like with like, your small cap fund in 2008 and another small cap fund of similar size.
"The New Star fund fell by 73%, and Rathbone [special situation fund] fell by 77%."
Oudkerk said the similar falls showed it was the market, and not bullying, which led to Evershed's fund's downturn.
"What we see here is the operation of the markets," he said.
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