Connecticut Superior Court finds that principals of hedge fund adviser did not breach their fiduciary duties to the partnership or its partners in sale of advisory business

  • Case dealt with the substance of the fiduciary duty owed by a general partner to the partnership and its limited partners.
  • Founders (a limited partnership) owned Forest (a hedge fund adviser) and Forum (a broker-dealer).  A corporation controlled by defendant Boyd was the GP of founders.  Plaintiff Hartley led Forum’s corporate finance department.
  • Founders sold Forum to First Union Bank and Forest to a group controlled by Boyd.  There were no other bidders for either entity, and both entities were sold for multiples of book value.
  • Plaintiff Hartley participated in every partnership meeting at which the sales were discussed, and Founders was advised by an investment bank, law firm and accounting firm.
  • Boyd owed a fiduciary duty to Founders and its LPs, including Hartley.  As such, he had to prove by clear and convincing evidence that he dealt “fairly” with his LPs in the sale.
  • Elements of fairness in this context were: (1) free and frank disclosure, (2) adequate consideration, (3) competent and independent advice and (4) relative sophistication of parties.
  • Court found that Boyd satisfied his fiduciary duty.

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