Illinois Appellate Court Rules on Whether a Hedge Fund Manager Can Compel Arbitration Based on an Agreement between a Fund Investor and a Clearing Broker

In a recent state court action, a hedge fund manager and fund moved to compel arbitration in their dispute with a fund investor, despite the absence of an explicit agreement between them to arbitrate disputes.  S. Louis Rathje (Plaintiff) sued Illinois-based investment firm Horlbeck Capital Management, LLC (HCM); HCM, L.P., a hedge fund (Fund); Todd Horlbeck, the manager/owner of HCM; and Stacey Kellogg, Horlbeck’s assistant (collectively, Defendants), based on losses allegedly caused by misvaluation of Plaintiff’s Fund investment.  The Defendants moved to compel arbitration based on clauses contained in agreements the Plaintiff executed with a broker-dealer and clearing broker when he invested in the Fund.  The Defendants were not parties to those agreements.  This article describes the factual background in the case, the Court’s ruling and the legal analysis supporting the Court’s decision on the Defendant’s motion to compel arbitration.

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