Billionaire Randy Lerner, owner of the National Football League’s Cleveland Browns, won a court order for the return of the remainder of his $40 million investment in a hedge fund that had refused to say where the money was invested.
Officials of Paige Capital Management LLC, created in 2006 to buy companies that faltered during the U.S.’s economic decline, improperly refused to return Lerner’s funds and retained them for the “selfish reason” of generating management fees, Delaware Chancery Court Judge Leo Strine concluded yesterday.
“I order a remedy requiring the immediate return” of all Lerner’s capital invested in the fund along with interest tied to the delay in handing over the funds, Strine said in 100-page ruling. The fund is run by Michele Paige, a former investment manager for billionaire Carl Icahn, along with her husband, Christopher Paige.
William Dolan, one of the Paiges’ lawyers, didn’t immediately return a phone call for comment yesterday on Strine’s decision.
Lerner, former chairman of financial services company MBNA Corp. who also owns the English Premier League soccer club Aston Villa, rebuffed a March offer by the Paiges to settle the case for about $3 million, according to court filings.
Lerner, with a fortune estimated at more than $1 billion by Forbes magazine last year, has been forced to inject $326 million into the Birmingham-based Aston Villa team since he bought it in 2006, according to filings with English regulators.
The Paiges sued Lerner’s investment fund last year arguing the billionaire was violating so-called “gate provisions” in his investment contract. The Paiges said the agreement barred Lerner from withdrawing his money because it amounted to more than 20 percent of the fund’s assets under management, according to court filings.
The fund returned about $8 million to Lerner in November 2010 under the terms of its agreement with the billionaire, according to court filings.
Lerner countered he was the only outside investor in the Paiges’ funds and properly requested his entire investment be returned after a three-year “lock-up period” expired in March 2010, court filings show.
The billionaire also claimed fund officials threatened to use litigation to keep the money under their control and refused, until November 2010, to even say where the money was invested, according to the filings.
The fund is “fully prepared to litigate this matter to the bitter end because we will continue to manage your money, and collect management and incentive fees, until this matter is resolved many years hence,” Christopher Paige, the fund’s general counsel, wrote in a March 2010 letter, according to court filings. “You cannot win because you will spend more litigating than we’re fighting over.”
In the Delaware case, Strine concluded the Paiges’ refusal to honor Lerner’s requests that his capital be returned violated the agreements between the parties.
Also, using gating provisions to insure the continued flow of management fees is a violation of legal duties hedge fund managers owe to those whose money they are managing, Strine found.
“The discretion granted to the hedge fund manager to determine whether to waive the gates is a fiduciary authority that must be used for the benefit of those who the hedge fund is intended to benefit and not for the selfish interest of the manager,” the judge said.
The case is Paige Capital Management LLC v. Lerner Master Fund, 5502-VCS, Delaware Chancery Court (Wilmington).
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