Allied Capital (NYSE:ALD) may have won the war, but recently some new skirmishes have been cropping up. For one thing, Greenlight Capital, which is run by hedge fund manager David Einhorn, sent a detailed letter to Allied Capital outlining alleged fraudulent activities committed by portfolio company Business Loan Express (BLX) and efforts to hide said fraud by Allied Capital management.

Einhorn and Jim Brickman, a retired real estate investor, are not exactly taking a break from letter writing, either, having filed a lawsuit on the behalf of the U.S. government to obtain damages for the alleged fraud. The government chose to pass on the case, so Greenlight Capital kindly picked up the torch, though not without some substantial incentive. Per whistleblower laws, the pair would be entitled to a substantial portion of any damages they collect if they win. Whether this is just a fishing expedition by Einhorn and Brickman remains to be seen, as the case is only in its beginning stages.

Not only that, but Einhorn did manage to achieve a moral victory of sorts when Allied Capital admitted that without management's authorization, an agent of the company had obtained Einhorn's personal phone records from 2005. This only came to light as Allied conducted an investigation in response to a U.S. attorney subpoena. This is particularly troubling, since Allied Capital denied that it had Einhorn's records numerous times in conference calls and in response to earlier Einhorn letters. In a battle that has often focused on Allied management's credibility, this was a direct hit.

Needless to say, despite the company's strong results last week, much of the conference call was spent discussing BLX. The company wrote down the struggling subsidiary to a valuation of about $211 million, $75 million being classified as a Grade 5 (a workout situation with some loss of principal expected) and $136 million being classified as Grade 3 (close monitoring required, but no loss of principal expected).

Keep in mind that Allied has also guaranteed nearly $190 million against BLX's credit lines, and had to make an additional $12 million infusion into the company in order to prevent it from defaulting on its loan covenants. It's interesting that Allied Capital chose to make significant valuation changes in a single quarter, because if one believes Einhorn and Brickman, the issues affecting BLX have been around for years.

In response to some tough questions and obvious frustration from Wall Street analysts, the company emphasized that BLX was focusing on moving away from SBA-oriented loans and pushing into non-real estate small business products in an effort to develop a niche away from potential competitors like Citigroup (NYSE:C) and Washington Mutual (NYSE:WM).

Still, for all the focus on BLX, investors should be aware that the rest of Allied's business is humming along nicely, and BLX is still essentially a small part of Allied's portfolio. Allied Capital will still probably be very successful over the next few years, as one challenging investment like BLX doesn't automatically doom the rest. Allied Capital's management has shown the ability to focus on delivering business results while dealing with some fairly substantial distractions. I don't expect that to change, and while the situation certainly promises to get potentially nasty, Foolish investors should keep their eye on the long-term results.

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Fool contributor Stephen Ellis does not own shares in any companies mentioned. You can view the stocks he owns and check out his 99th-percentile ranking in Motley Fool CAPS, the Fool's new stock-rating community. The Motley Fool has a disclosure policy.

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