From The Trenches

Notable Highlights

It’s All In A Day’s Work

Lead Investor Meets New Private Equity Firm; Together they Purchase an Orphaned Food/Beverage Company carved-out from Major Industry Consolidation.

We were tapped to assist the general counsel and investment team of a large fund of funds.  We knew the team and knew the drill as we had previously assisted them with various investments.  This time, they were intent on serving as lead investor in the first deal sponsored by a newly minted private equity firm whose founders had what is called, good pedigree.  This is actually not an unusual role for us as we are often called upon by family offices and funds to assist in evaluating, negotiating, structuring and closing various portfolio company investments. Timeframes are typically short and clients typically do not have the internal resources to cover all the bases themselves.  We love these situations as we get to work side by side with the client and their legal and investment teams and help make sure that the underlying transaction, deal structure, investment terms, etc. are optimal before they pull the trigger on their investment.

As with many of these type transactions, there were numerous components that needed to come together.  Although we were working with the lead investor, the private equity firm was actually leading the charge on the acquisition side, subject to close contact and input from the lead investor.

By pure happenstance, I knew the main principal of the private equity firm (more personally than professionally) which was viewed as more of a benefit and less of a conflict of interest by both sides who had not previously worked together.  I believe each side was comforted in this bridge I had to both sides.

After the usual rounds of drafting, negotiation and revision, the investment was made, the portfolio company was acquired and its transformation and success is ongoing.  The parties are currently busy working together on other projects.  I figure we will be getting a call one of these days.

A Legend is Born

The day started like most others and then I received a call that would change the complexion of the next two weeks.

It was a client that I know from the hedge fund space and several other ventures who had become involved in aviation through the purchase of a flight school in Florida, primarily for its fleet and licenses in place.  He was not an aviation specialist but his partner was experienced on the aviation finance side.  While beginning to operate the flight school and search for other opportunities, they quickly became aware of what seemed to be a gaping lack of aircraft that could service the exploding demand for package delivery.  Literally, the big box retailers and manufacturers in the vicinity of their airstrip were running over with offers to rent their aircraft during downtime.

Back to the call, I was informed they had a LOI to purchase a small fleet of airplanes that would be suitable for conversion to cargo aircraft and a LOI with a freight forwarding company to utilize the aircraft as soon as they could be brought on line.  They also had a near final LOI with a specialty finance fund that would provide an asset backed loan subject to numerous conditions and a complex package of reps, warranties and covenants that the borrower would be required to adhere to.

This was clearly an exciting deal which would require extreme finesse to help bring all of these pieces together.  Moreover, the timelines, were extremely tight.  The question was clearly can we help get this all tied up and done.

A lot of this was in our wheelhouse.  Financing (both equity and debt) was something we have good experience with.  Corporate structure and contract negotiation were also check marks.  Hey wait, we are definitely not aviation lawyers and wouldn’t know the faintest about due diligence and clearing title on aircraft transfers.  We were told that was not expected or an issue since they had specialty counsel for that aspect, it was all of the rest that they needed.  A few minutes later and we were in; a few hours later and we were inundated.

Long story short, it was a super busy 2 weeks which may have turned into 3, but on closing day the company structure was in place, the loan documents were negotiated and signed, the contract with the freight company was signed, and pilots had been hired and were waiting at the gate of various airports where the airplanes were located pending transfer of title to the buyer.  After an involved, multi-party call, the words “closed” were uttered, and capital flew and so too did the planes.  Legend Airlines was born.

Postscript.  It was a very successful business launch and the parties are discussing adding to the fleet.  When the phone rings, we will be ready.

So You Want to be a Hedge Fund Manager?

This is a story that repeats itself often around here.  We are well known in the hedge fund space as a “go to” law firm for launches and for our interest in working with emerging managers.  So we often receive calls from people seeking to establish their own fund.  Often the manager has been in the industry, has been a portfolio manager and seeks to go out on his own or with a small team.  Those managers have a network of contacts, sometimes a track record and they may have commitments for a decent capital base upon launch.

However, we also receive a lot of inquiries from people who do not fit the typical mold.  These individuals may have a math background, they may have been a rocket scientist or engineer, or they simply may have been trading their personal account to some level of success.  Although a hedge fund can sound daunting, establishing the right legal structure, entities and support teams and bringing the manager up to speed on operational and regulatory requirements is what we do all the time.  Offering sensible pricing and an interactive approach with the client, we help individuals turn their dreams to reality and put them in a position where they can take their talents to the next level and build a business.  Interestingly, the barriers of entry to launching a hedge fund are quite low compared to starting or buying another type of business.  Over the years we have seen funds that started as a sprout develop organically into substantial sized funds, which have substantially rewarded their principals in the process.

A History of Success in Regulatory Defense

Statutory Disqualification Avoided: Obtained approval of application to SEC on Form MC-400 enabling a client to remain in the securities industry notwithstanding being subject to an industry “statutory disqualification.” Successful engagement included filing the application after ten years of litigation with FINRA to position client to be in a position to overcome statutory disqualification, structuring plan of heightened supervision to win approval of the application, and arguing before the Statutory Disqualification Sub-committee of FINRA’s National Adjudicatory Council in Washington, D.C.

FINRA Enforcement Action Withdrawn: Succeeded in convincing FINRA after four years of enforcement action litigation to withdraw charges of multi-million dollar securities fraud.

Securities Fraud Litigation Dismissed: Succeeded in obtaining reversal by United States Court of Appeals of lower court’s dismissal of 10b-5 litigation (securities fraud) against an auditor who gave a “clean opinion” to materially inaccurate financial statements. The appeals court’s decision set a precedent in this area of law, and ultimately resulted in a significant settlement for the client, the chief executive officer of a well-known U.S. publicly traded company. [insert cite]

New York State Court Fraud Litigation Dismissed: Obtained dismissal of entire action on behalf of a group of seven associated clients in a $35 million fraud case brought in the Supreme Court of the State of New York. That dismissal was affirmed on appeal by the New York Appellate Division. Case closed.

Wells Submission and SEC settlement: Convinced SEC staff to scale down its proposed charges after submitting a “Wells submission” explaining how and why our young and unsophisticated client fell victim to the primary actions responsible for the fraudulent Ponzi-type scheme. scheme. Following that, successfully negotiated a favorable settlement with the Securities and Exchange Commission enabling our client to move past this episode and get on with his life.

Successes in FINRA customer matters and regulatory investigations:

  • Successfully defended securities industry clients in multiple FINRA arbitrations.
  • Obtained favorable settlements in multiple FINRA arbitrations.
  • Succeeded in getting FINRA to drop potential charges or terminate multi-year investigations involving possible violations of company policies and industry rules.
  • Negotiated virtually “painless” resolution of potential customer dispute on behalf of 45-year securities industry veteran with a clean record dated back to the 1980’s.