Billionaire Cleveland Browns Owner Claims Hedge Fund Is Hiding His Money

Date: Wednesday, November 3, 2010
Author: Nathan Vardi, Forbes

Billionaire Randy Lerner, the owner of the Cleveland Browns and the Aston Villa Football Club, is embroiled in a lawsuit over his October attempt to redeem $40 million from a hedge fund run by two sisters and a recent Republican Congressional candidate. In legal papers, Lerner claims the funds have been “hidden.”  

Paige Capital Management, a New York hedge fund firm owned by sisters Michele Paige and Jessica Paige, sued Randy Lerner’s Lerner Master Fund, which holds trust assets of the Lerner family, in Delaware’s Chancery Court after Lerner notified Paige Capital that it planned to redeem its entire investment at the end of October.

“[W]e are fully prepared to litigate this matter to the bitter end because we will continue to manage your money, and collect management and incentive fees, until this matter is resolved many years hence,” Christopher Paige, Paige Capital’s general counsel, defiantly wrote in a March letter, court filings show. “You cannot win because you will spend more litigating than we’re fighting over … we decide the best way to protect the funds, and your opinion is irrelevant.”

In filing its lawsuit for declaratory judgment enforcing the fund agreements, Paige Capital claims Lerner is contractually restricted by gate provisions from withdrawing its funds because they represent more than 20% of the Paige Capital funds’ assets under management. Lerner Master Fund has countersued for breach of contract, saying it has the contractual right to withdraw its money from Paige Capital’s two hedge funds. Lerner claims in a court document that it’s the only outside investor in the funds managed by Paige Capital, which has “hidden” Lerner’s money and “steadfastly refused to disclose what they have done with” it.

According to court documents, Lerner invested $40 million in October 2007 in the funds managed by Paige Capital Management. Lerner claims to have been acting as a seed investor in the hope that other investors would be attracted to the hedge funds and Lerner could share in generated fees.

In legal papers, Lerner makes sure to point out that Chris Paige, Paige Capital’s general counsel, “was formally known as Christopher Martin,” but legally changed his name after he married Michele Paige, who is chief executive of Paige Capital. Earlier this year Chris Paige, a former Democrat who lives with Michele Paige in Skytop, Penn., ran in the Republican primary for Pennsylvania’s 11^th Congressional District, but he dropped out prior to the vote.

At Paige Capital, Lerner claims, other investors never materialized and Lerner’s investment has at all times represented 99% of the funds’ assets. Michele Paige, who once worked for billionaire investor Carl Icahn and has been a visiting lecturer at Yale Law School, is the only other investor. In its legal filings, Paige Capital claims Lerner first tried to withdraw funds in January 2009 due to concerns over significant financial losses from Lerner’s other investments, but that Lerner backed down from the request. Earlier this year, Lerner notified Paige Capital that all funds would be redeemed on October 31, the three-year anniversary of the original contributions, when a contractual lock-up expires.

Lerner claims in a court document that Michele Paige and Paige Capital have threatened to place Lerner’s funds in high risk and long-term securities unless Lerner paid them millions of dollars. Lerner also contends Paige Capital has refused to provide Lerner with information about the particular securities in which Paige Capital has invested the money or “even where the funds are custodied,” rejecting multiple requests on its whereabouts.

On July 29, Lerner’s representatives went to Paige Capital’s New York offices to review documents in a pre-arranged meeting, but no employees or managing agents of Paige Capital were present, Lerner says in a legal filing. Two lawyers from an outside law firm met the Lerner people at the door and handed them a 52-page ledger showing payments and deposits during the prior three years, and 23 pages of other documents, including tax forms and photocopies of a driver’s license and passport. Lerner claims the documents it had requested to review were not made available

The “improper concealment of this most basic information is a fundamental breach of their duties,” Lerner says in its court-filed counterclaims. “It raises serious questions” about whether “the Paige family may have misappropriated some or all of the more than $40 million.” At one point Lerner Master Fund did sue Michele and Chris Paige in New York state court in a lawsuit that was removed to federal court and then dismissed when all the parties agreed to litigate the issue in Delaware. 

In the Paiges’ legal brief supporting their motion to dismiss Lerner’s counterclaims, they contend that all of Lerner’s accusations of wrongdoing are “wholly groundless—a transparent and malicious attempt to avoid the express withdrawal restrictions.” The Paiges contend that Lerner made no mention of any improprieties and voiced no concerns about hidden funds when Lerner first notified Paige Capital of its intent to withdraw funds. Lerner “now tries to conjure up some contract or fiduciary-duty breach by the Paiges,” the Paiges say in their legal brief. “But its allegations are a transparent attempt to escape its prior commitments. They are unfounded.”

A Lerner representative declined to comment. Lerner’s attorney in the case is superlawyer David Boies. Steven Molo, the lawyer representing the Paige family and Paige Capital Management, did not respond to requests for comment.

Randy Lerner used to be chairman of MBNA, a credit card company bought for $35 billion by Bank of America in 2006. His late father, Al Lerner, had also been chairman of MBNA and was a significant shareholder in the company.