Prominent hedge-fund manager and Obama donor Alphonse “Buddy” Fletcher is embroiled in a legal battle with three Louisiana-based pension funds seeking to recoup a $100 million investment with his firm.
Fletcher, who operates a series of hedge funds—some of which are based in the Cayman Islands and reportedly oversee as much as $500 million in assets—contributed at least $2,300 to Obama’s campaign in 2008 and $50,000 to the president’s inauguration fund.
One of those hedge funds, Fletcher International Ltd., filed for bankruptcy protection on June 29, and recently sued some of its own Cayman Island-based affiliates in an effort to stop the court-ordered liquidation of its assets.
When three Louisiana employee pension funds decided to invest nearly $100 million in Fletcher International in 2008, Fletcher guaranteed a lucrative 12 percent return on their investment. One of Fletcher’s associates also claimed the investment could be liquidated “in a matter of weeks,” if necessary.
A DVD recording of a 2008 meeting between Fletcher’s firm and administrators of one of the pension funds shows a pension fund board member questioning whether the offer was “too good to be true.” The funds went ahead with the investment anyway.
When the pension funds sought to withdraw their investment in 2011, Fletcher denied their request. The funds were given promissory notes, essentially IOUs, instead.
Pension fund officials tried again to withdraw their investment in December 2011, but the idea was “summarily dismissed,” an executive director of one of the funds told the New Orleans Times-Picayune.
The officials then petitioned a Cayman Island court to liquidate the fund holding their investment, which was granted in April 2012. The court ruled Fletcher International to be insolvent on a cash-flow basis, and concluded that the promissory notes given to pension officials were “commercially worthless.”
Earlier this month, the New York Times reported that the Securities and Exchange Commission (SEC) has opened an inquiry into Fletcher’s hedge fund.
The SEC is also looking into whether the studio of top Obama bundler and Dreamworks CEO Jeffrey Katzenberg illegally bribed Chinese officials in effort to secure exclusive films rights in the communist country.
Fletcher’s firm has appealed the Cayman Island court ruling, and claims it is the victim of a “coordinated legal assault.”
Fletcher is known for his litigious proclivities. He sued his own residence, the exclusive Dakota building in Manhattan, as well as individual members of its board in 2011, claiming his request to purchase an adjoining unit was rejected because of his race. The case is pending.
The Dakota board, on which Fletcher served as president from 2007 to 2009, argues its decision was based on a “good-faith judgment” that Fletcher “was not financially qualified to purchase a second apartment.”
Fletcher already owns four units in the building, including one he bought for his mother and two smaller ones he maintains for employees and storage space.
Board members were concerned that Fletcher’s tax returns showed only $700,000 in adjusted gross income, well below the amount needed to purchase and maintain all of the units he planned to own.
Others raised questions about Fletcher’s extensive charitable activity, such as a 2004 pledge to donate $50 million to a variety of organizations promoting racial justice. Fletcher told the New York Times in 2011 he had already donated more than half of the $50 million, but added: “It’s a pledge, not a commitment, and that’s that.”
Fletcher has a history of filing racial discrimination lawsuits. In 1991, he sued his bosses at investment firm Kidder Peabody, claiming deficient compensation due to racial discrimination. Though Fletcher was ultimately awarded more than $1 million in the case, arbitrators found no evidence of discrimination.
Fletcher has also been on the receiving end of a number of sexual harassment lawsuits. In the mid-2000s, he settled two claims by former employees who accused Fletcher of making inappropriate sexual advances toward them.
Fletcher’s wife, Ellen Pao, is currently suing her former employer, San Francisco venture capital firm Kleiner Perkins Caufield & Byers, for sexual harassment. She claims a junior partner at the firm made “inappropriate” sexual advances, to which she “succumbed” on several occasions, and later engaged in a “consistent pattern of retaliation.” Pao’s suit further alleges that senior management at the firm ignored her complaints.
Kleiner Perkins, which lists former vice president Al Gore as an investment partner, is run by John Doerr, who has given more than $170,000 to Democratic candidates and committees since 2008, and more than $2 million over the past 20 years. The firm itself has given more than $1 million to Democrats since 2005.
Doerr served on President Obama’s Economic Recovery Advisory Board in 2009, where he had a hand in crafting the controversial $787 billion stimulus package. Kleiner Perkins benefitted significantly from that legislation and other Obama initiatives; 16 of the 27 companies listed in its “green tech” portfolio have received some form of taxpayer support.
Kleiner Perkins told Tech Crunch the firm believes Pao’s lawsuit “is without merit and intends to vigorously defend the matter.”