3 Degrees Asset Management, a hedge fund with $250m under management, was asked by Singapore�??s central bank to shutter its operations following allegations that founder Moe Ibrahim diverted assets.

3 Degrees is trying to overturn a decision by the Monetary Authority of Singapore (MAS) and the finance minister to withdraw its exempt fund manager status effective Nov. 9 and ask it to wind down, according to a lawsuit filed with the Singapore High Court this month. A closed hearing is scheduled for Oct. 20.

The MAS probed the Singapore-based manager after one of its funds sued Indonesian-born Agus Anwar in 2008 to recover at least $40 million in debt. Anwar then claimed that Ibrahim diverted $6.7 million from the fund to 3 Degrees, which is wholly owned by Ibrahim. 3 Degrees, which focuses on distressed debt, denied the allegations in its lawsuit.

Even if there was such a transaction, it was neither �??illegal or improper,�?� 3 Degrees said in its court filings. The hedge fund manager said a fine would have been an appropriate punishment.

The capital markets regulator decided that 3 Degrees and Ibrahim weren�??t fit and proper persons to be in the regulated activity of fund management, according to the hedge fund�??s lawsuit. The finance minister affirmed the decision to withdraw the fund�??s exempt status.

Fund managers with fewer than 30 qualified investors are exempted from licensing and business conduct requirements under Singapore�??s Securities and Futures Act. 3 Degrees has stopped accepting new clients, according to the lawsuit.

Allowing the withdrawal of 3 Degrees�?? exempt status would leave the fund with no bargaining power to liquidate assets and would �??create a bad precedent for the future,�?� it said in court papers.

3 Degrees called the decision �??draconian�?� and said it was based on �??illogical, irrational and unreasonable�?� statements and assumptions, according to its lawsuit.

�??Other hedge fund managers would face the same risk and may become over-cautious for fear of having their own exemptions withdrawn,�?� Ibrahim said in the filings.

�??The authority would appear to be sending out a signal that all it takes are strong allegations from a desperate, debt- ridden party without conclusive evidence to corroborate these allegations or a disgruntled employee for a withdrawal of an exemption or license to occur,�?� he said.

The case is 3 Degrees Asset Management Pte v Attorney General and Monetary Authority of Singapore OS874/2011 in the Singapore High Court.