Articles By Topic
By Topic: Derivative Suits
From Vol. 6 No.18 (May 2, 2013)
When Can Hedge Fund Investors Bring Suit Against a Service Provider for Services Performed on Behalf of the Fund?
A federal district court recently considered whether claims brought by investors in a bankrupt hedge fund against a lender for allegedly aiding and abetting the fund manager’s breach of fiduciary duty and fraud against the hedge fund should be permitted to proceed. The fundamental question at issue was whether the investors’ claims were direct claims that should be permitted to proceed or derivative claims that should have been brought by the hedge fund and therefore should be dismissed. For another discussion of derivative suits in the hedge fund context, see “U.S. District Court Holds That Hedge Fund Investors Do Not Have Standing to Bring a Direct, As Opposed to Derivative, Claim against Hedge Fund Auditor PricewaterhouseCoopers LLP,” The Hedge Fund Law Report, Vol. 3, No. 47 (Dec. 3, 2010). This article summarizes the factual and procedural background of the case as well as the court’s legal analysis and decision.Read Full Article …
From Vol. 6 No.3 (Jan. 17, 2013)
In What Circumstances May Hedge Fund Investors Bring Proceedings in the Name of the Fund for a Wrong Committed Against the Fund, When Those in Control of It Refuse to Do So?
The evolution of the law relating to corporations, and in particular the doctrine of the company as a separate legal person, presented a risk from the earliest times that minority investors might be left without a remedy if those in control of the company breached their trusts or duties and destroyed the value of that investment through mismanagement, self-dealing or other misconduct. The risk of losing one’s investment in circumstances where there has been corporate wrongdoing has not abated, and in today’s hedge fund universe, the likelihood is that the shareholder will have invested a very substantial amount of capital for a minority position in a fund, the majority of whose directors and whose investment manager and other service providers are based in another country. There are over 10,000 registered Mutual Funds in the Cayman Islands alone, many of which are directed and managed out of New York or Delaware. In response to the concern that there is no remedy for the shareholder for such wrongs, many jurisdictions have sought to implement the procedural device of the derivative action as a means of affording substantive relief to investors. Wherever they are brought, derivative actions have a common theme and a universal aim: the theme is that shareholders are not being heard and cannot take action themselves; the aim is to restore value to the company in which they have invested. The mechanics for providing this substantive relief vary across the different jurisdictions. In a guest article, Christopher Russell, David Butler, Michael Swartz and Daniel Cohen compare the mechanics of how hedge fund investors may pursue derivative actions in three different jurisdictions: the Cayman Islands, Delaware and New York. Russell is a Partner in the Litigation and Insolvency Department of Appleby Cayman, and Butler is a senior Associate in the Department; Swartz is a Partner and Cohen is an Associate at Schulte Roth & Zabel LLP.Read Full Article …
From Vol. 3 No.47 (Dec. 3, 2010)
U.S. District Court Holds That Hedge Fund Investors Do Not Have Standing to Bring a Direct, As Opposed to Derivative, Claim against Hedge Fund Auditor PricewaterhouseCoopers LLP
The U.S. District Court for the Southern District of New York has granted hedge fund auditor PricewaterhouseCoopers LLP (PWC) summary judgment, dismissing the direct fraud claims brought by certain investors in hedge fund Lipper Convertibles, L.P. (Fund). Following the Fund’s collapse in 2002, Andrew E. Lewin and other Fund investors commenced an action against PWC, the Fund, the Fund’s general partner and certain Fund affiliates and principals, alleging a variety of direct and derivative claims. At the time of the subject decision, the only surviving claims were the investors’ direct claims against PWC for fraud in the inducement under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 under that Act, common law fraud and negligent misrepresentation. The investors alleged that they were induced to invest in the Fund by PWC’s false and misleading auditor’s opinions that the Fund’s operations had been audited in accordance with generally accepted auditing standards and that its financial statements were prepared in accordance with generally accepted accounting principles. The Court granted PWC’s motion for summary judgment, deciding that the investors’ claims were derivative in nature and could not be maintained in a direct action against PWC. The investors offered no proof that they received less than they bargained for at the time of their respective investments in the Fund. We summarize the key legal and factual provisions of the Court’s decision.Read Full Article …
From Vol. 1 No.5 (Mar. 31, 2008)
New York Court Holds that Limited Partners in Delaware LP Lack Standing to Bring Derivative ClaimRead Full Article …