Loose Corporate Formalities of Former Hedge Fund Management Partners Result in a Messy Business Divorce
Hedge Fund Law Report
On July 8, 2011, the U.S. District Court for the District of Connecticut issued an opinion that partially ruled on summary judgment motions involving a highly “unusual set of circumstances” in a contentious dissolution involving former hedge fund partners Scott Stagg and Gary Katcher. The action, part of three separate lawsuits that arose out of Stagg’s creation of a new hedge fund and Katcher’s sale of a company for a sizeable personal fortune, involved allegedly fraudulent and otherwise improper transfers by and among two families of hedge funds, their investment adviser and broker. The plaintiffs, 3V Capital Master Fund, Ltd. (3V), and its purported successor-in-interest, SV Special Situations Master Fund, Ltd. (SV), which Stagg formed independently of Katcher, filed a complaint against his former partner Katcher and Katcher’s brokerage firms, Libertas Holdings, LLC and Libertas Partners, LLC, as well as a subsequent purchaser of the Libertas entities, in order to recover millions in allegedly improper financial transfers to those firms. These defendants, in turn, filed a third-party complaint against Stagg, the Chief Operating Officer (COO) Mark Focht they had hired, and 3V Capital Management, LLC (3V Management), their investment adviser, in order to obtain, among other things, indemnification for the third-party defendants’ part in the alleged wrongdoing. We detail the background of the action and the Court’s legal analysis.