U.S. market regulators on Friday sued the former chief financial officer of a multibillion-dollar hedge fund founded by Daniel Zwirn, accusing him of improperly transferring $870 million between the fund's accounts.

The lawsuit filed in Manhattan federal court by the U.S. Securities and Exchange Commission accused Perry Gruss, of the now defunct hedge fund D.B. Zwirn & Co, LP, of improperly transferring money between onshore and offshore accounts and for using client money to pay for a private plane.

Gruss knowingly misused the signatory and approval authority he had over funds held in client accounts, the lawsuit said. He authorized more than $870 million in improper transfers of client cash, both between client funds and from client funds to the investment adviser and third parties.

Gruss, 43, resigned from Zwirn in 2006 after the fund threatened to fire him, the lawsuit said.

Nick Akerman, a lawyer representing Gruss, said in an emailed statement that his client categorically denied the claims in the lawsuit.

The SEC's claims are not supported by the evidence. Rather, the complaint is based on a fundamental misunderstanding of the complex nature of how the funds operated. At all times Mr. Gruss acted in the best interests of the shareholders and there is not even an allegation that he obtained any financial gain whatsoever from any of the transactions alleged in the complaint, Akerman wrote.

Zwirn was a global hedge fund that managed $5 billion at its peak, the suit said, with over 200 employees in 10 offices across the world. It shut down its two largest offerings in 2008 after investors asked for roughly $2 billion back.

It was later acquired by Fortress Management, a New York private equity and hedge fund manager.

Gruss would approve all cash transfers at the company, the suit said. and would improperly transfer money between accounts to meet constant cash shortages.

At one point in 2005, the SEC said Gruss authorized the use of $3.8 million in client money to pay for part of a $17.95 million private plane for the fund.

The case is U.S. Securities and Exchange Commission v. Perry Gruss, U.S. District Court, Southern District of New York, No. 11-cv-2420.

(Reporting by Basil Katz; additional reporting by Maria Aspan; Editing by Richard Chang, Gary Hill)