Four former executives of quantitative value equity manager LSV Asset Management — as well as a related fifth plaintiff — have filed a lawsuit alleging that the company, including Josef Lakonishok — founding partner, CEO and CIO — as well as other management figures, engaged in a “fraudulent scheme to force the sale of their equity at a significantly reduced price,” according to a complaint filed by the plaintiffs’ law firms, Procel Law and Duggan Bertsch.
The plaintiffs are Han Qu, Bhaskaran Swaminathan, Peter Young, Simon Zhang and Peng Tu.
Qu, Swaminathan, Young and Zhang are all former LSV executives, while Tu is not a former LSV employee. Rather, Tu — the husband of Qu — is a plaintiff in the case because the LSV shares acquired by Qu are held jointly in the name of Qu and Tu, a spokesperson for the law firms confirmed.
The lawsuit was initially filed July 14, with an amended complaint filed Sept. 19, in the Circuit Court of Cook County, Chicago.
The complaint alleges that the forced sale deprived the executives of at least $100 million in equity. The four former executive plaintiffs, who in the aggregate served more 90 years at LSV, acquired these shares under the pretense that they would continue to receive financial distributions from the company even after leaving.
However, the suit asserts, LSV misled the plaintiffs into acquiring equity that LSV subsequently repurchased at a fraction of its market value, thereby violating LSV’s fiduciary duty and contractual obligations.
During the four executives’ tenure at LSV, the suit alleges, they were “pressured by management to acquire shares as a sign of loyalty to the company.”
Specifically, the plaintiffs collectively purchased equity for more than $25 million, including more than $2 million in cash and more than $22 million in bank debt, which entitled them to millions of dollars in annual distributions. However, LSV “repeatedly represented to the plaintiffs throughout their employment that they would own the purchased shares outright when the bank debt was paid off,” the lawsuit said.
Despite these payments, the plaintiffs received no distributions for years, but they paid taxes on the income. Moreover, they were required to forgo salary increases for most or all of their careers.
In addition, at LSV’s encouragement, the plaintiffs also incorporated the shares into their estate plans, and resigned or retired believing they would retain ownership and continue receiving distributions.
Each of the plaintiffs left LSV independently of each other within a six-month period in 2023. After the plaintiffs’ departures, LSV’s remaining senior executives “prioritized their own financial interests by forcing the sale of the shares at a grossly undervalued price without the plaintiffs’ consent,” the complaint stated.
The lawsuit also said the defendants viewed the very act of leaving LSV as “an act of betrayal” and felt entitled to deprive plaintiffs of the true value of their LSV shares.
The suit also alleges LSV has withheld more than $25 million in proceeds from the sale under a “litigation reserve,” which is being used as leverage to deter the plaintiffs from bringing a fraud claim against the company.
Swaminathan was the director of research and a partner at LSV and worked at the firm for more than 18 years. Qu was one of the founding employees of LSV and held the title of senior quantitative analyst and partner. She worked at LSV for more than 30 years. Young, who worked at LSV for more than 18 years, held the title of director of client portfolio services. Zhang held the title of senior quantitative analyst and partner at LSV, where he worked for more than 26 years.
Along with LSV and Lakonishok, Josh O’Donnell (chief compliance officer, chief legal officer, chief risk officer, partner); Kevin Phelan (chief operating officer, partner) and Menno Vermuelen (portfolio manager, senior quantitative analyst, partner) were also named as defendants.
“Our clients intend to show at trial that LSV engaged in blatant fraud against some of its most senior executives,” said lead attorney Brian Procel in an Oct. 14 news release. “We will introduce evidence that LSV utilized a web of agreements for the purpose of retaining control over LSV employee stock. And just like a yo-yo, LSV pulled the string at the time of its choosing, to deprive its own executives of the shares they worked for decades to acquire.”
Procel added in the news release that the executive plaintiffs “never would have agreed to acquire the shares, especially at the prices set by LSV, if they believed the company effectively had a perpetual repurchase option, allowing it to buy back the shares whenever it wanted and at whatever price it determined.”
As a result of LSV’s “unlawful withholding” of distributions and the current market value of the plaintiffs’ purchased shares, the plaintiffs are seeking damages in excess of $100 million, along with punitive damages and attorneys’ fees.
“LSV Asset Management is aware that four former employees have filed a civil complaint against the company related to company equity formerly indirectly associated with them,” said Tim Spreitzer, an LSV spokesperson, in a statement. “LSV believes the claims are rife with inaccuracies and without merit and intends to vigorously defend itself in any future proceedings. While we cannot comment on active litigation, we can share that the action does not relate to LSV’s investment management activities for its clients.”
LSV has about $100 billion in assets under management.
