A Finra arbitration board has ordered hedge fund giant D.E. Shaw & Co. to pay a former star fund manager $52 million, which represents one of the largest defamation fines in at least a decade.
The fine is a fraction of the $600 million sought by Daniel Michalow, who was fired from the $60 billion hedge fund shop in 2018 for sexual misconduct charges, but he is describing the award as a major victory.
“It is appropriate that the arbitrators found the Executive Committee members personally liable for the firm’s false statements,” Michalow said in an emailed statement.
“To their colleagues, journalists, and D. E. Shaw’s investors, Max Stone and Eddie Fishman pretended they were social activists and models of corporate governance at my expense. Meanwhile, they repeatedly violated D. E. Shaw’s policies and core principles. Now David Shaw knows I was telling him the truth,” he added.
“It is possible to defeat power, arrogance, and lies with persistence, humility, and truth. I’m deeply grateful to my friends and family for their support, to Tom and the legal team for their excellence, and to Finra for setting the record straight with this defamation award," Michalow continued. "I’ve learned a great deal from this experience and am excited for the future.”
A spokesperson for the D. E. Shaw group responded to a request for comment with the following statement: “We were disappointed by the outcome of the arbitration, and we stand by the decision we made in 2018 to terminate Mr. Michalow’s employment with the firm.”
Securities attorney Adam Gana, who wasn't involved in the case, said it's “one of the largest defamation awards I’ve ever seen.”
“Defamation cases are very hard to win and to get an award of this size in unique,” he said.
In addition to the size of the award, Gana said it is also unique that the arbitration award makes the hedge fund and four individuals “jointly and severally responsible,” making it more difficult to avoid payment through bankruptcy.
Securities attorney Andrews Stoltmann, who also was not involved in the case, described the ruling as a “relatively hollow win.”
“While it’s a win as defined by Finra, it’s a relatively small percentage recovery based off of the amount requested,” Stoltmann said. “I can promise you, the claimant's attorney and the claimant are not too happy with this result.”
The Finra arbitration board ruling follows a long and entangled path that originated with some allegedly inappropriate comments made by Michalow, who initially agreed to resign.
But according to published reports, including a five-page letter Michalow wrote to D.E. Shaw founder David Shaw, the planned resignation morphed into a firing following an internal investigation.
According to reports, the hedge fund was trying to balance a quiet departure by Michalow with appeasing the employee who complained after hearing secondhand that Michalow made a comment about wanting to hire an assistant he could refer to as “sugar tits.”
Michalow, who joined D.E. Shaw in 2004 after graduating from Harvard University, took issue with a noncompete clause that was being enforced against him by the hedge fund, which triggered the internal investigation.
In his May 2018 letter to the company founder, Michalow described himself as a “whistle blower” and referenced “threats and bullying against me” from people at the company.
“All I have asked is that the firm say publicly what has repeatedly been told to my representatives and to me privately — that my departure from the firm is not related to sexual misconduct,” Michalow wrote to Shaw.
“While I was surely an abrasive boss and perhaps deserved to be fired for my style, there is no basis for the whisper campaign about anything sexual,” the letter continues.
Michalow’s letter goes on to describe in detail the “wild side of D.E. Shaw culture.”
“At the first bonus night after I joined the firm, following a party where everyone got completely drunk, I was invited by a group that included fairly senior executives to go to a strip club,” he wrote.
Respondents named in the suit along with D.E. Shaw include managing directors Maximilian Stone, Edward Fishman, Julius Gaudio and Eric Wepsic.
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