Jason Mudrick has been enjoying a run this year that most other hedge fund managers only dream of.

His flagship fund at Mudrick Capital Management is up 32% on soaring valuations for one of the largest players in the U.S. vaping market. Now, that same bet could pose a headache for the maverick investor.

About $800 million, or almost 30% of the assets overseen by his firm, are tied to E-cigarette maker NJOY Holdings Inc., according to people with knowledge of the matter. Mudrick’s controlling stake in the vaping venture has powered pretty much all of the gains in his flagship fund this year at a time when many other managers are posting tepid returns. NJOY is also spread across his other funds, except one focusing on socially responsible investing.

Yet the future of vaping is suddenly being cast into doubt as U.S. regulators raise alarms about an epidemic of underage use and as a spate of vaping-related lung diseases emerge across the U.S., killing eight people so far and affecting more than 500 others. Last week, the Trump administration surprised many in the industry by pledging to take steps to remove almost all flavored e-cigarette products from the market, pending their approval by the Food and Drug Administration.

Federal prosecutors in California are conducting a criminal probe into e-cigarette maker Juul Labs, Dow Jones reported Monday, citing people familiar with the matter who didn’t elaborate on investigators’ concerns. Walmart Inc. has said it will stop selling e-cigarettes at U.S. locations, India moved to ban e-cigarettes and China is likely to enact stricter rules, too.

The explosion of troubles in recent weeks has hurt NJOY’s efforts to raise money, but the impact on Mudrick’s gains so far is less clear. NJOY was in talks for an equity fundraising at a valuation of as much as $5 billion, up from a round in May that valued the company at $2 billion, according to a person with knowledge of the matter. Those talks have broken down amid the current turmoil, but NJOY is trying to raise convertible debt that may establish a fresh valuation in line with what it achieved in May, the person said. That would help support the hedge fund’s gains.

In the meantime, Mudrick has maintained the position at its May valuation, based on a performance update sent to investors this month that was seen by Bloomberg. Representatives for Mudrick and NJOY declined to comment.

Mudrick has shifted most of his holdings to longer term locked-up vehicles that limit the risk of a run even if investors were to sour on his exposure to one investment. In its almost $1 billion flagship distressed fund, only a quarter of the holdings are subject to quarterly redemptions, the person said. Before regulators signaled their potential clampdown on vaping this month, the money management firm saw its biggest inflows into that fund with $120 million in new money, the person said.

Mudrick, 44, took a controlling stake in the vaping company as it emerged from bankruptcy in 2017, for what would now appear to be pennies on the dollar. He held a 51% stake when the company was valued at about $40 million. That has since dropped to about 40% after share sales that more than recouped his original investment.

The remaining stake in the vaping company single-handedly drove a 25% gross return at Mudrick’s master fund in the second quarter. Without NJOY, the fund would have posted a loss for that period.

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