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Originally posted by Motofan
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"Investors in the Waddell & Reed fund bankrolling PBC are suing Waddell & Reed for $925 million."
OLATHE, Kan. (CN) — Kansas-based business trusts let a portfolio manager spend $925 million on a "potentially criminal" start-up pro boxing company rather than the stable investments they advertised, shareholders claim in court.
Saket Kapor and two others sued Ivy Investment Management Co. and Waddell & Reed Investment Co. on April 18 in Johnson County Court. They also sued 16 directors of the trusts — but not Ryan Caldwell, the portfolio manager they accuse of spending the money for his own intended benefit.
Ivy Investment and Waddell & Reed are both Delaware business trusts based in Overland Park, Kan. Kapor, Peter Brockett and Hieu Phan filed the lawsuit as a shareholder derivative complaint.
Beginning in April 2013, the plaintiffs say, the trustees let Ryan Caldwell, one of the two portfolio managers of Ivy Asset Strategy Fund and the Waddell & Reed Asset Strategy Fund, spend approximately $925 million on "a start-up and potentially criminal" professional boxing promotion company.
"These purchases had no economic justification, but rather were motivated by Caldwell's personal interest and benefit," the complaint states.
The plaintiffs claim Caldwell knew the companies faced hundreds of millions in short-term losses, but pledged financial support from the funds to entrepreneur Alan Haymon, who is not a party to the case.
"This private stock investment violated the stated terms of the Prospectuses for the Funds, which describe an investment strategy that 'primarily focuses on securities issued by large capitalization companies,' that 'can offer a high probability of return or, alternatively, can provide a high degree of relative safety in uncertain times, with Strong cash flow streams: and 'high sustainable cash flow,'" the complaint states. "Investing nearly a billion dollars of private securities in a start-up boxing promotion company, as high-risk a venture as one could imagine, meets none of these criteria."
The plaintiffs say Caldwell's actions were inappropriate because as a fund manager he should have been making objective investment decisions.
In June 2014, the plaintiffs say, Caldwell resigned from the funds to join one of Haymon's companies. They question whether he actually resigned, or was fired by the trustees for making the investments, and whether he had a quid pro quo agreement with Haymon's company.
"In either case, the trustees have not acted properly," the complaint states.
Haymon's activities have been the subject of several lawsuits recently, according to the complaint. The Courthouse News database shows Haymon as a defendant in four lawsuits since 2013, all involving pro boxing, and another lawsuit in 2005, also involving boxing.
An independent association of State Boxing Commissioners asked the Justice Department to investigate Haymon's business practices, the plaintiffs say.
They say the defendants kept them in the dark.
"The Funds made no meaningful disclosure about their investment in this company, or how this investment was different from, or carried risks that were different from, the disclosed strategies in the Prospectuses," the complaint states. "The Funds also did not disclose Caldwell's personal relationship with Haymon or how that relationship influenced the decision to invest in Haymon's company — or how such a relationship might present a conflict of interest."
The plaintiffs say that whether the defendants knew that Caldwell was investing nearly a billion dollars "into a high-risk start-up that was designed to violate antitrust laws" or not, they should have known the investment was well outside the bounds of the funds' investment strategy.
Roger Hoadley, a vice president and director of communications for Ivy Investment and Waddell & Reed Financial said in an email that the underlying facts of the new lawsuit are similar to two others that were dismissed last year. He said that while the claims are different, they all relate to a single investment in the company's Asset Strategy Funds that represents less than 1 percent of its holdings.
"The suit includes significant factual errors and language that brings question to its overall merit," Hoadley said in the statement. "Lawsuits such as this often arise when the value of a fund has declined. We are continuing to evaluate the pleadings and case strategy and will respond appropriately. Regardless, our commitment to managing fund investors' money and striving to deliver strong results remains unchanged."
Caldwell started a new mutual fund company called Chiron Investment Management, which is a partnership with three former bankers from Goldman Sachs, according to a July 2015 article by The Wall Street Journal. Under Caldwell's watch, The Ivy Asset Strategy Fund delivered average returns of 10 percent over the past decade — third-best among comparable managers, according to the Journal.
Waddell & Reed announced recently that it would lay off 10 percent of its full-time employees, as its first quarter profits this year fell by 44 percent, the Kansas City Star reported.
The plaintiffs seek $925 million in restitution to the funds. They are represented by John Jackson Miller with Swanson Midgley, in Kansas City, Mo. Haymon was named as a defendant in two antitrust complaints in Los Angeles Federal Court in 2015; a 2014 contract complaint in Miami-Dade County; a 2013 summons and complaint in Essex County Superior Court, Newark; and a 2005 contract complaint in Clark County, Las Vegas.
OLATHE, Kan. (CN) — Kansas-based business trusts let a portfolio manager spend $925 million on a "potentially criminal" start-up pro boxing company rather than the stable investments they advertised, shareholders claim in court.
Saket Kapor and two others sued Ivy Investment Management Co. and Waddell & Reed Investment Co. on April 18 in Johnson County Court. They also sued 16 directors of the trusts — but not Ryan Caldwell, the portfolio manager they accuse of spending the money for his own intended benefit.
Ivy Investment and Waddell & Reed are both Delaware business trusts based in Overland Park, Kan. Kapor, Peter Brockett and Hieu Phan filed the lawsuit as a shareholder derivative complaint.
Beginning in April 2013, the plaintiffs say, the trustees let Ryan Caldwell, one of the two portfolio managers of Ivy Asset Strategy Fund and the Waddell & Reed Asset Strategy Fund, spend approximately $925 million on "a start-up and potentially criminal" professional boxing promotion company.
"These purchases had no economic justification, but rather were motivated by Caldwell's personal interest and benefit," the complaint states.
The plaintiffs claim Caldwell knew the companies faced hundreds of millions in short-term losses, but pledged financial support from the funds to entrepreneur Alan Haymon, who is not a party to the case.
"This private stock investment violated the stated terms of the Prospectuses for the Funds, which describe an investment strategy that 'primarily focuses on securities issued by large capitalization companies,' that 'can offer a high probability of return or, alternatively, can provide a high degree of relative safety in uncertain times, with Strong cash flow streams: and 'high sustainable cash flow,'" the complaint states. "Investing nearly a billion dollars of private securities in a start-up boxing promotion company, as high-risk a venture as one could imagine, meets none of these criteria."
The plaintiffs say Caldwell's actions were inappropriate because as a fund manager he should have been making objective investment decisions.
In June 2014, the plaintiffs say, Caldwell resigned from the funds to join one of Haymon's companies. They question whether he actually resigned, or was fired by the trustees for making the investments, and whether he had a quid pro quo agreement with Haymon's company.
"In either case, the trustees have not acted properly," the complaint states.
Haymon's activities have been the subject of several lawsuits recently, according to the complaint. The Courthouse News database shows Haymon as a defendant in four lawsuits since 2013, all involving pro boxing, and another lawsuit in 2005, also involving boxing.
An independent association of State Boxing Commissioners asked the Justice Department to investigate Haymon's business practices, the plaintiffs say.
They say the defendants kept them in the dark.
"The Funds made no meaningful disclosure about their investment in this company, or how this investment was different from, or carried risks that were different from, the disclosed strategies in the Prospectuses," the complaint states. "The Funds also did not disclose Caldwell's personal relationship with Haymon or how that relationship influenced the decision to invest in Haymon's company — or how such a relationship might present a conflict of interest."
The plaintiffs say that whether the defendants knew that Caldwell was investing nearly a billion dollars "into a high-risk start-up that was designed to violate antitrust laws" or not, they should have known the investment was well outside the bounds of the funds' investment strategy.
Roger Hoadley, a vice president and director of communications for Ivy Investment and Waddell & Reed Financial said in an email that the underlying facts of the new lawsuit are similar to two others that were dismissed last year. He said that while the claims are different, they all relate to a single investment in the company's Asset Strategy Funds that represents less than 1 percent of its holdings.
"The suit includes significant factual errors and language that brings question to its overall merit," Hoadley said in the statement. "Lawsuits such as this often arise when the value of a fund has declined. We are continuing to evaluate the pleadings and case strategy and will respond appropriately. Regardless, our commitment to managing fund investors' money and striving to deliver strong results remains unchanged."
Caldwell started a new mutual fund company called Chiron Investment Management, which is a partnership with three former bankers from Goldman Sachs, according to a July 2015 article by The Wall Street Journal. Under Caldwell's watch, The Ivy Asset Strategy Fund delivered average returns of 10 percent over the past decade — third-best among comparable managers, according to the Journal.
Waddell & Reed announced recently that it would lay off 10 percent of its full-time employees, as its first quarter profits this year fell by 44 percent, the Kansas City Star reported.
The plaintiffs seek $925 million in restitution to the funds. They are represented by John Jackson Miller with Swanson Midgley, in Kansas City, Mo. Haymon was named as a defendant in two antitrust complaints in Los Angeles Federal Court in 2015; a 2014 contract complaint in Miami-Dade County; a 2013 summons and complaint in Essex County Superior Court, Newark; and a 2005 contract complaint in Clark County, Las Vegas.
Beyond that, Waddell &Reed manage at least $40b, largely through mutual funds in a market where broad sectors are getting hit hard.
Try going beyond the headline when you try and make a statement.
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