Delaware Chancery Court, Criticizing Both Sides in Contentious Litigation, Awards $4.662 Million to Camulos Capital Hedge Fund Founder in Payment for His Fund Interest

Partings of hedge fund manager principals typically follow one of two paths – the amicable, or the not amicable.  Amicable partings often result in seeding relationships and long-term value creation.  See “Ten Issues That Hedge Fund Seed Investors Should Consider When Drafting Seed Investment Agreements,” Hedge Fund Law Report, Vol. 4, No. 12 (Apr. 11, 2011).  Not amicable partings often result in protracted litigation, high costs and hurt feelings.  See “Loose Corporate Formalities of Former Hedge Fund Management Partners Result in a Messy Business Divorce,” Hedge Fund Law Report, Vol. 4, No. 26 (Aug. 4, 2011).  This article describes an unfortunate – but instructive – example of the latter scenario.  In mid-2005, Soros Fund Management alumni Richard Brennan and plaintiff William Seibold formed Camulos Capital LP (Camulos Capital) and hedge fund Camulos Partners LP (Fund).  The Fund’s general partner was Camulos Partners GP LLC (Camulos GP and, together with the Fund and Camulos Capital, Camulos).  Unhappy at Camulos, Seibold left in 2007 and started his own fund, Noroton Event Driven Opportunity Fund LP (together with its general partner and investment manager, Noroton).  Seibold asked to redeem his entire interest in the Fund.  Camulos refused to pay, claiming that it was entitled to withhold the money to offset damage it sustained by reason of Seibold’s breach of Camulos’ confidentiality agreement, breach of fiduciary duties and other misconduct.  Almost three years of litigation ensued, followed by a trial before Chancellor Strine of the Delaware Court of Chancery (Court).  In a comprehensive, and at times caustic, decision, Chancellor Strine ruled on both Seibold’s and Camulos’ claims.  See also “Cayman Islands Court of Appeal Refuses to Allow an Investor in Hedge Fund Camulos Partners to Commence a Winding-Up Proceeding to Pursue its Unpaid Redemption Demand Because the Investor has Alternative Available Remedies,” Hedge Fund Law Report, Vol. 3, No. 14 (Apr. 9, 2010).

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