The hedge fund firm formerly known as Och-Ziff “deteriorated” under the “mismanagement” of its founder Daniel Och, forcing his successors to spend years stabilizing the Wall Street firm, the company said in court records.
Och’s handling of a 2016 African bribery scandal involving the firm, now renamed Sculptor Capital Management Inc., damaged the fund’s business and balance sheet and left employees reeling, lawyers said on March 19. October in a legal battle over whether Och can gain access to company internal files.
Och, one of Sculptor’s largest shareholders, wants a Delaware judge to order the company to turn over documents detailing its poor performance and the December decision of directors Jimmy Levin, who took over as CEO last year, to award more than $145 million in compensation. A record-keeping trial is scheduled to begin Dec. 16 in Delaware Chancery Court.
Sculptor lawyers say Levin’s former mentor misused the so-called books and records to frame him and erase the record of Och’s behavior “by creating a false narrative in which he is the company’s savior and protects it from its current management.” Such document requirements are often made prior to filing a lawsuit in Delaware for litigation.
Representatives from Sculptor and Och declined to comment on the filings. The lawsuit, filed by Och and a group of other former executives at the company, focuses on Levin’s promotion to CEO and how the board set his salary.
Och co-founded the company in 1994 and grew it into a hedge fund powerhouse with nearly $50 billion in assets at its peak. But Och-Ziff’s misconduct in Africa – the subject of a lengthy bribery investigation and eventual settlement with US authorities – triggered a relentless bleeding of assets and staff. Och stepped down from his role as CEO in 2018 and hired banking outsider Robert Shafir to lead the company in place of Levin, who was co-chief investment officer at the time. The decision caught many unprepared.
Still, Levin, whose relationship with Och dates back to his days as a counselor and waterski instructor at a camp where the billionaire’s children spent part of their summer, eventually rose to the top and took over as CEO in 2021. His rise was accompanied by sizeable salary packages, which led to disputes between board members.
Och and the other former executives are now investigating whether board members violated legal obligations by failing to consider other CEO candidates or by failing to conduct proper succession planning. They have also noted the departures of seven directors since January 2020, including five who resigned mid-term. Some of these board members supported Och’s concerns about Levin’s salary.
Sculptor’s declining performance fuels Och’s questions. In his own filing on Wednesday, the billionaire said the company’s investment performance was “close to the bottom of the competition” and its stock price had lagged since the board awarded Levin his “massive salary package.”
Sculptor’s flagship hedge fund is down 13.9% this year through September, according to a person familiar with the matter, underperforming the average hedge fund. The company’s shares are down 56% this year to $9.24 at Friday’s close.
Sculptor says Och is targeting Levin for his efforts to revitalize the company after the bribery scandal, implement governance reforms and strengthen its balance sheet by demanding financial concessions from Och, who retaliated by vetoing a decision by the Board moved to install Levin as CEO in 2017.
Ochs Animus has made the relatively routine filing request part of his “blood feud” with his former protégé, Sculptor said in the filing. The company says that Och should produce documents going back six years to “examine the historical animus of the founders”.
“The sculptor contends that the plaintiffs do not have a reasonable purpose,” the file says when searching for the internal files. “Mr. Och and his joint plaintiffs – who all have good reason to be loyal to the man who made them rich – are using this lawsuit as a soapbox in their vendetta against the company and Mr. Levin.”
Delaware law requires investors to show they have a legitimate reason to request internal company files. Personal vendettas fail this test.
For Och, he says Levin is going too far in asking him for such a wide range of documents to cast doubt on his motives for searching internal records. According to court records, Och only wants records dating back about eight months.
The case is Daniel Och v. Sculptor Capital Management Inc., 22-0748, Delaware Chancery Court (Georgetown)
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