For Perots, $1 billion gain will ease year of financial and legal wrangling

Date: Monday, September 28, 2009
Author: Brendan Case and Gary Jacobson, The Dallas Morning News

The Perot family is in line to snare $1 billion by selling Perot Systems Corp. to Dell Inc. a balm for one of Dallas' wealthiest families after a year of bruising setbacks.

In April, Ross Perot Jr.'s real estate development company agreed to give up its stake in Victory project buildings surrounding American Airlines Center, although it continues to operate and manage Victory.

Three months later, he sued fellow Dallas billionaire Mark Cuban, owner of the Dallas Mavericks, over profit from American Airlines Center.

In the suit, Perot accused Cuban of wrongfully diverting millions of dollars in arena profit to fund the Mavs. Cuban scoffed that Perot was "desperate" from recent financial reverses and accused him of "trying to find nickels in the sofa cushion."

That all came in the aftermath of the November crash of a hedge fund led by the Perot family that had about $2.5 billion in assets at the beginning of 2008. Now the court battle over whether anyone's legally liable for the hedge fund's downfall is set to heat up.

Two lawsuits stemming from the failure of hedge fund Parkcentral Global Hub Ltd. were consolidated into one last month in federal court in Dallas.

In it, three outside investors in the fund allege that Perot family investment entities and two advisers "recklessly and grossly" neglected their management duties even as they pocketed hundreds of millions of dollars in fees. The investors are seeking class-action status.

Defense attorneys have until next month to file a motion to dismiss the case. Barry McNeil, a lawyer defending the Perot entities, promised that his filing would be "darn persuasive."

"In my judgment, the lawsuit is just frivolous," he said.

The Perots also displayed their golden touch in 2008. Ross Perot Jr. and two partners sold natural gas properties in the Barnett Shale to Quicksilver Resources Inc. in a deal valued at $1.3 billion in July 2008.

As for the hedge fund, however, Perot family members were the largest investors in the fund, and they suffered the largest losses, a family spokesman said.

Ross Perot Jr., chairman of Plano-based Perot Systems, has said that the decision to sell the company to Dell, based in Round Rock, Texas, was unrelated to hedge fund losses or issues in the family's other ventures.

But the deal certainly doesn't hurt the family's finances. Dell's agreement to buy Perot Systems for $3.9 billion would net the family about $1 billion. That's $400 million more than the family's stake would have fetched the week before the deal was announced.

Few tycoons have deeper pockets than the Perots, which makes them an attractive legal target.

"I would say so," agreed Southern Methodist University law professor Alan Bromberg when asked about the case.

In the Parkcentral Global Hub suit, the outside investors allege that the Perot defendants disregarded their own risk controls and failed to hedge the fund's potential losses. The plaintiffs also say the hedge fund broke a promise to make the same investments "same securities and equal proportion" as another investment fund, called Petrus, that handled only Perot family money.

"Petrus did not implode, as Parkcentral did," the complaint states.

Whether the suit will gain class-action status is far from certain. A class action on behalf of all investors in Parkcentral Global Hub could significantly up the stakes.

"It changes everything," said Lew LeClair, a Dallas lawyer who is not involved in the case. "If the class isn't certified, it's not unusual to see the case essentially stall out. If the class certifies, it's not unusual to see the case settle."

Leading the charge for the investors is a high-profile San Diego firm with a history of pursuing class actions: Coughlin Stoia Geller Rudman & Robbins LLP.

"As alleged in the complaint, the fund imploded because even though investors were promised that the fund used highly disciplined and sophisticated investing methodologies and risk management controls, the defendants failed to do what they promised and they hid these critical facts from victimized investors," said Dan Newman, a spokesman for the firm.

Also representing the plaintiffs is Dallas lawyer Joel Fineberg, who did not return phone calls and e-mail messages requesting comment.

SMU's Bromberg, an expert in securities law, doesn't give the case much chance of reaching class-action status. But he said if the plaintiffs have evidence that there was "material misrepresentation," they may have a good claim.

"Nobody ever really wants to go to trial in these cases," he said.