On Sunday, Mr. Griffin, the 38-year-old founder of big Chicago hedge fund Citadel Investment Group, first learned about deep troubles at hedge fund Sowood Capital. He called a team of 30 traders at their homes and told them to come into the office, trying to figure out a way to profit from the problems. On Monday, Citadel bought up many of Sowood's investments, including bond positions that were rapidly losing value.

For Sowood, it was a way to salvage something from the losing securities. The Boston-based hedge fund has seen its investments drop more than 50% in value in just the past few weeks, in part because it used borrowed money that amplified its losses. It will give the money it now holds, about $1.5 billion, back to its investors as it winds down its two hedge funds. That makes it the most high-profile hedge fund to collapse in the continuing bond-market difficulties.

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