The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: Investor Letters

  • From Vol. 4 No.17 (May 20, 2011)

    Is a Threatening Letter from a Hedge Fund Manager to a Seed Investor Admissible in Litigation between the Manager and the Investor as Evidence of the Manager’s Breach of Fiduciary Duty?

    Hedge fund manager Paige Capital Management, LLC (Fund), had a dispute with seed investor Lerner Master Fund, LLC (Lerner), over Lerner’s demand to withdraw its entire investment.  The Fund’s attorney wrote a letter to Lerner “reminding” Lerner of the potential costs of litigation over Lerner’s withdrawal rights and advising Lerner that, if it did not drop its withdrawal demand, the Fund would invest Lerner’s funds in “high risk, long-term, illiquid, activist securities” and spare no expense in defending the Fund.  This litigation ensued and the Fund sought to block Lerner from introducing the letter as evidence of breach of fiduciary duty by the Fund, claiming that the letter was protected both as a settlement communication and by the privilege for allegedly defamatory statements made in the course of litigation.  We summarize the decision.

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  • From Vol. 3 No.35 (Sep. 10, 2010)

    Hedge Fund Manager Elliott Management Withdraws Petition Seeking Discovery from Absolute Return + Alpha Regarding Identity of Source of Leaked Investor Letter

    On August 31, 2010, hedge fund manager Elliott Management Corporation, along with its managed hedge funds Elliott Associates, L.P. and Elliott International, L.P. (collectively, Elliott), withdrew their petition seeking pre-litigation discovery from hedge fund industry publication Absolute Return + Alpha (Publisher).  Elliott had sought discovery regarding, among other things, the identity of a source that provided Elliott’s June 30, 2010 investor letter to the Publisher.  That copyrighted investor letter contained confidential information regarding Elliott’s investments, trading positions and performance, and Elliott argued in court papers that public disclosure of the information would undermine its negotiations with trading counterparties.  Accordingly, when the Publisher told Elliott that it was going to publish the letter, Elliott sought an emergency order permitting it to take a deposition of the Publisher and conduct other pre-action discovery to find the source of the disclosure.  In an unfiled affidavit, the Publisher argued, among other things, that the New York Reporter’s Shield Law provided it with an absolute privilege to report information obtained from a confidential source without revealing the identity of the source, even if the information was copyrighted and confidential. Although Elliott withdrew its petition before the court had an opportunity to issue a substantive opinion, the petition itself is noteworthy for various reasons.  First, it details five measures taken by a sophisticated hedge fund manager to protect the confidentiality of position and performance information in an investor letter.  (Those five measures are detailed in this article.)  Second, it illustrates the challenge faced by a manager in the event of an unauthorized disclosure of an investor letter.  Had the matter proceeded and had Elliott obtained the identity of the source, Elliott presumably would have faced the unpalatable option of suing one of its own investors for damages arising out of this disclosure (though any such damages would be hard to quantify) or an injunction against further disclosures of information in the June 30 letter or future letters.  Alternatively, or in addition, Elliott might have brought an action against the Publisher, though in the absence of a confidentiality agreement or any other relevant contract between Elliott and the Publisher, the basis of any such claim is not immediately apparent.  This article details the thorough and rigorous process that Elliott used to ensure the confidentiality of its investor letters, and the legal steps it undertook to maintain that confidentiality when, despite those efforts, the content of one of those letters leaked.

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