The troubled hedge fund firm that lost billions in the Archegos Capital Management collapse was hit with a lawsuit this month by a former investor who alleges fraud and seeks more than $77 million in damages..
The suit filed in Manhattan federal court accuses New York-based Woodward Partners and its founder Joseph DiMenna, Jr. of making misrepresentations and omissions to investors, including about the fund’s significant exposure to Archegos, a family office run by former Tiger Management portfolio manager Bill Hwang. .
Archegos imploded in March 2021 after it defaulted on margin calls by prime brokers after making concentrated bets on a handful of technology and media companies using borrowed money. The debacle triggered more than $10 billion in losses for banks including Credit Suisse, Nomura and Morgan Stanley..
The former investor, a Chicago-based family office known as the Pritzker Organization, said it was told by Woodward that its exposure to Archegos was limited to a “small trading account.” The suit alleges that this representation was false and that Woodward had in fact made large investments in Archegos-linked securities..
The suit also alleges that Woodward failed to disclose to investors that it had borrowed more than 100% of its assets under management to fund its investments, which the suit says is a violation of the Investment Advisers Act..
The suit seeks $77 million in damages, which includes the principal amount of the Pritzker Organization’s investment, plus interest and attorneys’ fees..
A lawyer for Woodward did not immediately respond to a request for comment. DiMenna could not be reached for comment..
The Pritzker Organization is a family office that manages the wealth of the Pritzker family, which founded the Hyatt Hotels chain. The family has a long history of investing in private equity and hedge funds..
Woodward is an equity hedge fund that was founded in 2017. The firm has about $1.5 billion in assets under management and has invested in companies such as AutoZone, Chipotle Mexican Grill and The Trade Desk..
The suit against Woodward is the latest in a series of legal challenges facing the firm. In April 2022, the Securities and Exchange Commission charged Woodward with fraud and negligence in connection with its investments in Archegos. The SEC alleged that Woodward failed to properly disclose its exposure to Archegos and that it made misleading statements to investors about the fund’s risk management practices..
Woodward has denied the SEC’s allegations and has said that it will fight the charges..
The Archegos debacle has raised concerns about the risks associated with family offices, which are often lightly regulated and have been increasingly active in the hedge fund industry. The SEC has said that it is investigating Archegos and other family offices to determine if they are complying with the law..
