Daniel Och, is sued for $150 million by one of his former traders, who claims he was improperly terminated by Och as a partner of Och’s big hedge fund firm so that Och could boost his own equity interest in the New York-based company.
Arnaud Achache who used to trade credit and equity derivatives at Societe Generale, made a lot of money working for Och, Now Achache wants more.
He claims that after Och’s firm, Och-Ziff Capital Management, conducted an initial public offering in 2007, Och “began to systematically eliminate the more junior limited partners—at the alarming rate of almost two partners per year—and clawed back their ownership interest for his own benefit.”
To a large extent, what Achache describes in his lawsuit is pretty typical -where traders are richly rewarded when they make money and thrown out on the street if they underperform.
Lawsuit sheds some light on this tough business which is typified by Och, who was one of the top-earning hedge fund managers last year and has built one of the world’s largest hedge fund firms with about $29 billion under management.
According to the 27-page complaint Achache filed in Manhattan’s New York state court, Och forced the withdrawal of at least six limited partners following the IPO. Both Och and Achache declined to comment.
Achache claims Och met with him in March 2009, about six years after Achache joined the firm, and told Achache he had been voted out of the hedge fund partnership. Achache was later given a separation agreement that clawed back 75% of Achache’s unvested limited partnership interests that have a fair market value of $25 million, the lawsuit says. The deal, the lawsuit says, also called for Achache to forfeit his rights to payments owed to him under a 2007 tax agreement prior to the IPO, which Achache estimates to be in excess of $9.25 million. If Achache’s estimates are even close to accurate, it shows how much even a junior partner at a big hedge fund firm stands to earn in the hedge fund business.
Achache claims he signed the separation agreement because Och used Achache’s immigrant status as leverage, making it clear that Och-Ziff’s “ongoing assistance with the visa process was conditioned upon his agreement.” Achache claims damages of $50 million and punitive damages of $100 million against Och.
For years it appears, Achache made lots of money at Och-Ziff. Achache claims he received a 1% ownership interest in the hedge fund firm after he became a non-managing member in 2005, which was used to calculate his share of the incentive and management fees generated by the firm. The lawsuit says Achache’s interest was cut to 0.962% in 2007, but Achache was still making plenty of money over and above his share of the fees—when Och-Ziff borrowed $750 million to finance a $720 million dividend in 2007, Achache got $257,000. The lawsuit suggests Achache got around $19 million from the IPO proceeds and claims he got $4 million less than he would have received had his ownership interest not been reduced.