New York Supreme Court Dismisses Hedge Fund Investors’ Claims Against Prime Broker

On July 23, 2008, Justice Charles E. Ramos of the New York Supreme Court, Commercial Division, dismissed claims brought by investors in hedge fund Wood River Partners, L.P. against the Fund’s prime broker, clearing broker and custodian, UBS Securities, LLC, for allegedly causing the Fund’s collapse. The decision suggests that under New York law, a prime broker, clearing broker or custodian of a hedge fund does not – solely by virtue of serving in any of those roles – owe a fiduciary duty to investors in the fund. The decision also suggests that state law claims based on diminution in value of a hedge fund are properly brought by the fund itself, or derivatively by its investors on behalf of the fund, rather than by investors in the fund. See Eurycleia Partners, LP v. UBS Securities, LLC, No. 600874/07 (N.Y. Sup. Ct. July 23, 2008).

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