A new lawsuit between D.E. Shaw and a former subsidiary unveils the complicated dealmaking that has come to be a part of many large-scale hedge funds, and the difficulties in valuing private companies.
The suit alleges that the $50 billion hedge fund sold off a litigation finance unit at a discount, and that the unit’s founder did not receive the same payout as other equity holders.
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An ongoing legal battle between high-powered hedge fund D.E. Shaw and a former executive is shining light on the difficulty of valuing private companies.
Gary Chodes, founder of Oasis Financial, a player in the booming litigation finance space, is suing the $50 billion hedge fund, claiming that it sold Oasis in a hurry for less than what it was worth. D.E. Shaw bought a majority stake in Oasis in 2007 through a fund known as D.E. Shaw Composite Side Pocket, and sold the company to private equity manager Parthenon in 2016.
Side pocket funds are used by hedge funds as their own internal private equity vehicle, which have a longer timelines than many funds’ traditional strategies. These funds are not meant to be long-lasting products — they often close once an investment thesis plays out.
Chodes also claims that equity holders in the side pocket fund D.E. Shaw used to buy Oasis improperly received payouts from the deal and he got nothing, even though he still had a chunk of equity and an Oasis board seat.
The lawsuit was filed in February 2018, and has not previously been reported. Recently, an Illinois judge rejected a motion to dismiss the suit from the defendants, pushing the suit closer to trial. Currently, a date is set for November 18, though it is expected to be delayed, according to sources close …read more
Source:: Business Insider