In Messy Hedge Fund Employment Dispute, Highland Capital Accuses Former Executive’s Counsel of Extortion and Other Criminal Acts in Connection with Possession and Threatened Use of Highland’s Confidential and Proprietary Information

In a nasty divorce from its one-time general counsel and senior executive Patrick Daugherty, hedge fund manager Highland Capital Management, L.P. (Highland) has taken the gloves off and sued Daugherty’s counsel, Looper Reed & McGraw, P.C. (Looper).  Highland claims that, at the termination of his employment, Daugherty misappropriated more than 60,000 documents containing Highland’s confidential and proprietary information.  It further accuses Looper of improperly obtaining and using that information to assist Daugherty in his effort to “extort” more than $2 million from Highland.  This case underscores the need for hedge fund managers to take strong prophylactic measures to prevent the theft of such information, including any trade secrets, prior to an employee’s departure.  See “Recent Developments Affecting the Protection of Trade Secrets by Hedge Fund Managers,” Hedge Fund Law Report, Vol. 6, No. 41 (Oct. 25, 2013); “Measures Hedge Fund Managers Can Implement to Maximize Protection of Their Trade Secrets,” Hedge Fund Law Report, Vol. 5, No. 46 (Dec. 6, 2012).  The case also argues in favor of pre-employment background checks of hedge fund manager employees.  See “Six Critical Questions to Be Addressed by Hedge Fund Managers That Outsource Employee Background Checks (Part Three of Three),” Hedge Fund Law Report, Vol. 6, No. 40 (Oct. 17, 2013).  This article summarizes the factual and legal allegations in Highland’s petition, including a discussion of protective measures employed by Highland designed to protect its confidential information.  Highland previously sued Daugherty over his possession and use of that information.  See “Highland Capital Management Sues Former Private Equity Chief for Breach of Employment and Buy-Sell Agreements,” Hedge Fund Law Report, Vol. 5, No. 20 (May 17, 2012).  For a discussion of another action involving a hedge fund business divorce, see “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,” Hedge Fund Law Report, Vol. 5, No. 38 (Oct. 4, 2012).

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