NC PE Fund Lost $40M+ on “Worthless” Startup Investment, Suit Claims
by Brian Eckert
Milberg attorneys are representing a private equity fund investor in a derivative lawsuit that accuses the fund’s asset manager and majority owner of mismanaging portfolio assets by investing them in a “worthless” startup company and failing to reveal a conflict of interest. The lawsuit claims the defendants breached their fiduciary duties and seeks investment loss damages.
Derivative Allegations Stem From $40M+ Investment Loss
Plaintiff Weatherspoon Family LLC first invested in the Hatteras Evergreen Private Equity Fund, LLC (“Evergreen Fund”), managed by Hatteras Investment Partners and its majority owner David B. Perkins, in 2017. Weatherspoon has held those securities and been a member of Evergreen Fund since that time.
Evergreen Fund’s stated business objective is to achieve long-term capital appreciation by investing in a diversified portfolio of private investments.
Evergreen Fund’s investment loss exceeds $40 million.
Consistent with this objective, Evergreen Fund held a diversified portfolio of alternative assets, including private equity limited partnership interests, until December 7, 2021, at which time Hatteras and Perkins exchange its alternative asset portfolio, valued at approximately $43 million, for preferred equity securities in startup company The Beneficient Company Group, or “Ben” for short.
According to a complaint filed in the North Carolina Business Court on December 4, the shares of Beneficient Company have proven to be “nearly worthless,” causing Evergreen to lose more than $40 million of the $43 million it previously held. Today, Evergreen Fund’s remaining shares in Ben are valued at less than $1 million.
Fund Manager Ignored Warning Signs
The lawsuit states that Hatteras and Perkins had a conflict of interest due to a separate business relationship with Ben. The defendants were allegedly offered an opportunity to co-sponsor new investment funds with Ben, contingent on the Evergreen Fund’s initial investment in Ben.
It is further alleged that there were several red flags surrounding Ben at the time of the transaction, including an SEC investigation and poor financial performance.
GWG Holdings, Inc., Ben’s former parent company, revealed in public filings from November 2021 that the SEC had launched an investigation of Ben and GWG. GWG’s public filings also revealed that Ben had been forced to restate its 2019 financial statements, was deeply unprofitable, that numerous directors of Ben and/or GWG had resigned within the past two years, and that several auditors of Ben and/or GWG had declined to stand for reappointment within the past four years.
Defendants disloyally used Evergreen Fund’s assets for their own benefit, and to the detriment of Evergreen Fund, and thereby breached their fiduciary duties to Evergreen Fund.
Despite these red flags, the managers of Evergreen Fund invested in Ben. In June 2023, Ben went public through a merger with a special purpose acquisition company (SPAC). The price of Ben’s stock immediately plummeted and is now down by over 99% since the SPAC merger.
Beneficient’s common stock is listed on the NASDAQ under the symbol BENF, where it is described as a “technology-enabled financial services company” that provides “liquidity solutions and trust products and services to participants in the alternative assets industry.”
NASDAQ data shows that, in the last year, Beneficient stock went from trading for nearly $48 per share to currently less than $1 per share.
The lawsuit alleges that Hatteras and Perkins knew Ben was a risky investment but ignored the risks and red flags. They are also accused of ignoring Evergreen Fund’s investment parameters requiring diversification and, in violation of their fiduciary duties, using the Fund’s assets to pursue business opportunities and profits for their own benefit.
“Because the Manager’s business opportunities were contingent on Evergreen Fund’s completion of the [Beneficient] Transaction, the Manager lacked disinterestedness and independence and effectively stood on both sides of the transaction,” the complaint states.
Weatherspoon seeks equitable and injunctive relief from the defendants for their alleged breaches of fiduciary duty. Attorneys Matthew E. Lee, Jeremy R. Williams, and Eric Steber from Milberg’s Raleigh office are representing the plaintiff in the investment loss lawsuit.
Milberg is among the nation’s most recognized and impactful securities firms. In its early years, Milberg created a new practice area when it began representing shareholder interests under Rule 23 of the Federal Rules of Civil Procedure. Milberg attorneys have since represented plaintiffs in an array of financial cases, including securities class actions, derivative litigations, accounting malpractice disputes, and FINRA arbitrations that have returned billions of dollars to defrauded investors.
