New York Supreme Court Rules that Aris Multi-Strategy Funds’ Suit against Hedge Funds for Fraud May Proceed, but Negligence Claims are Preempted under Martin Act

Aris Multi-Strategy Fund, LP (Aris LP) and Aris Multi-Strategy Offshore Fund Ltd. (Aris Offshore) (together, Aris or Plaintiffs), two funds of hedge funds managed by Aris Capital Management, LLC, brought an action to recover over $5.13 million allegedly lost by the funds in connection with their investments in underlying hedge funds, the Horizon Funds.  Among other things, Plaintiffs alleged fraud on the part of the Horizon Funds and the indirect owner of the Horizon Funds’ investment manager.  On December 14, 2009, the New York State Supreme Court rejected a motion by the defendants to dismiss the fraud claims, finding that Plaintiff’s complaint (1) contained allegations sufficient to state a cause of action for fraud, and (2) raised factual questions sufficient to survive dismissal under New York Civil Practice Law and Rules Section 3211.  However, the court dismissed tort claims brought by Plaintiffs, finding that such claims were preempted by the Martin Act (New York State’s anti-securities fraud statute).  We detail the factual background of the case, Aris’ legal arguments and the court’s analysis.

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