By Keith Button
A co-founder of Scottwood Capital Management is suing the event-driven hedge fund firm for a share of the profits it posted after his departure in 2007.
Adam Weiss, who helped managing partner Edward Perlman start Scottwood in 2001, claims in a lawsuit that Perlman and the Greenwich, Conn., firm failed to pay him 20% of Scottwood’s net profits, as stipulated in his separation agreement.
The lawsuit also claims that Scottwood improperly included the cost of buying artwork when calculating Weiss’s share of net profits and that the firm stopped sending him the financial reports that were required by the agreement. Weiss is seeking back pay plus unspecified damages.
Weiss’s allegations are “baseless, without merit and factually incorrect,” said Scottwood’s lawyer, Scott Greathead, in a written statement. Scottwood met its responsibilities under the separation agreement, while Weiss repeatedly violated it, said Greathead, an attorney at Wiggin and Dana in New York. He declined to provide details. In court, Scottwood has not yet answered the legal complaint, filed March 18 in New York State Supreme Court in New York County.
Weiss and his attorney, Benjamin Nagin at Sidley Austin in New York, declined to comment on the suit.
As of February 1, Scottwood was managing about $550 million. Performance for Scottwood’s main fund swung from a 45% gain in 2009 to a 6.6% loss in 2010—a year that included a loss of 18.5% in May. Assets under management had dropped to $310 million at the end of 2008, then rebounded to $750 million in 2010, before the disastrous May.
During Weiss’s stint at Scottwood, he was in charge of marketing and risk management, while Perlman headed the investment side of the business. Perlman owned all the equity in the firm, but he shared its profits with Weiss.
According to the lawsuit, Perlman asked Weiss to leave in 2007, when assets under management at Scottwood had increased to approximately $900 million. Weiss left at the end of 2007 after negotiating the separation agreement.
According to the lawsuit, under the agreement, Scottwood was to pay Weiss 20% of the firm’s profits through June 30, 2011, and was also supposed to report monthly net asset value statements for its funds and other financial statements through December 31, 2011. The lawsuit states that Scottwood and Perlman failed to pay Weiss in 2010 and have told him he will not receive pay for 2011, and they stopped sending him financial statements in the summer of 2010.
Both Weiss and Scottwood/Perlman hired outside counsel to negotiate the separation agreement, with Willkie Farr & Gallagher representing Scottwood and Perlman, according to Weiss’s complaint.
