Sarah A. Bradley, co-founder of middle-market private equity firm Kainos Capital, has responded to a countersuit filed by the firm and her fellow co-founders, denying their claims that her lawsuit derailed fundraising of a third Kainos fund and that she breached her fiduciary duty by including fund documents as exhibits to her complaint.
Ms. Bradley had sued Kainos Capital and the firm's other founders, Andrew Rosen, Robert Sperry and David Knickel, claiming fraud, breaches of fiduciary duty and seeking millions of dollars in damages. The complaint, filed Jan. 25 in the Delaware Chancery Court, also seeks the return of Ms. Bradley's 25% interest in Kainos.
Her complaint alleges that Kainos, formed in 2011, is a successor to private equity firm Hicks, Muse, Tate & Furst, whose reputation was damaged by a pay-to-play scandal involving state pension funds in the U.S. It also alleges that Kainos and the other co-founders defrauded Ms. Bradley out of her 25% ownership in the firm in part by converting Kainos into a limited partnership.
Kainos Capital and Messrs. Rosen, Sperry and Knickel together filed a counterclaim in March, alleging Ms. Bradley was unhappy that she would be receiving a smaller percentage of the carried interest of Kainos' third fund "based on her diminishing relative contribution to the firm's performance." The counterclaim alleges that she "worked in secret to develop a litigation threat" to be released after Kainos released its Fund III offering to give herself leverage.
In her response to the counterclaim, Ms. Bradley alleges that the marketing of Fund III predated her discovery of claims against the defendants. She alleges that Mr. Rosen wanted Fund III fundraising to begin "as early as possible" and the private placement memorandum for Fund III was planned to be released in December 2018.
She alleges that Mr. Rosen was pushing for early fundraising because after the sales of three Fund I portfolio companies and he allegedly told Kainos executives, including Ms. Bradley, that Kainos was not going to have "any more good news for a while" and the firm needed to raise funds while it had the momentum.
The complaint alleges that Mr. Rosen allegedly wanted Ms. Bradley to raise the firm's third fund quickly because "Rosen stated he had concerns that performance could continue to deteriorate at one of Fund II's larger investments and wanted to be in the market with Fund III ahead of any potential bad news."
Mark Semer, a Kainos spokesman, could not be immediately reached for comment by deadline.