Federal Court Decision Addresses the Enforceability of an Earnout Provision in the Sale of a Hedge Fund Management Business

This article summarizes the factual background and legal analysis in a recent federal court decision on the enforceability of an earnout provision in the sale of a hedge fund management business.  The dispute described in this article and the Court’s analysis of the dispute will inform the drafting of earnout and related provisions in documents governing the purchase and sale of a hedge fund management business.  For more on structuring considerations in connection with acquisitions of hedge fund managers, see “Buying a Majority Interest in a Hedge Fund Manager: An Acquirer’s Primer on Key Structuring and Negotiating Issues,” Hedge Fund Law Report, Vol. 4, No. 17 (May 20, 2011).

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