NEW YORK (CNN/Money) - Investors in Wood River Capital Management started running for the exits around the same time Lehman Brothers sued the hedge fund firm over a stock transaction, but the firm is having a hard time giving investors their money back, according to a person familiar with the situation.

Lehman Brothers, the hedge fund's broker, said it lost $8 million after buying shares on Wood River's behalf in a micro-cap telecommunications company, Endwave Corp (down $0.43 to $13.06, Research)., but was never paid for the shares, according to a complaint filed Oct. 3 in California Superior Court in San Francisco.

Investors began requesting their money in late September and early October, but not everyone who asked has been able to get money back, as the estimated $265 million onshore fund sunk a large chunk of capital into shares of Endwave Corp. Wood River now holds 4.3 million shares of Endwave, valued at about $60 million, according to filings with the Securities and Exchange Commission.

Such a large, concentrated position in one stock violates the terms of Wood River's offering memorandum, which said individual long positions would typically be capped at 10 percent of the portfolio, according to a person who has seen the documents.

Scott Berman, an attorney with Friedman Kaplan Seiler & Adelman who is representing some investors in Wood River's offshore fund, whose size wasn't immediately available, said he began hearing from investors last week.

Berman said that right after his clients subscribed to the fund, they found out the management team had resigned, that the SEC had subpoenaed the fund's administrator, and that Wood River had not issued a statement of the fund's net asset value, among other things.

"As soon as they learned of these things, they sent a cancellation of their subscription, which they were entitled to do, but which has not been honored," Berman said.

Lehman said in its complaint that it agreed to act as Wood River's agent in a stock transfer that would have moved Endwave stock from a Merrill Lynch account controlled by Wood River to another of its accounts at Wedbush Morgan Securities.

Lehman bought the shares, but Wood River did not arrange for the Endwave securities to be transferred to Wedbush, leaving Lehman holding the bag on more than $20 million of Endwave stock, the complaint alleges.

Lehman also said it believes Wood River, based in San Francisco and Ketchum, Idaho, has shut down. In its complaint, Lehman Brothers says it was unable to reach the firm's founders.

Wood River's offshore fund opened in July. The onshore fund opened in February 2003; according to a person who has seen the firm's offering documents, the firm's portfolio typically has 40 to 50 long positions.

This is the second high-profile hedge fund drama in recent months. Last month, two executives of Bayou Group turned themselves into authorities and pleaded guilty to felony fraud charges. Investors in that fund are still trying to recover the $450 million they invested.

John Whittier, Wood River's managing partner, started telling investors within the last month about the fund's large position in the stock, according to a Wall Street Journal report. Endwave's share price has plunged from $54 in July to its close Monday at $13.49.

The rapidly declining stock price caused investors to start asking for their money back; other investors became alarmed when they had difficulty reaching Whittier, according to the report.

The Wall Street Journal reported separately Monday that the Securities and Exchange Commission is also investigating the firm. The SEC declined to comment.

Whittier did not return a call for comment, nor did his attorney. Lehman Brothers declined to comment.

-----------------

For more on the Bayou hedge fund scandal, click here.