Rithm Capital's plan to acquire Sculptor Capital Management hit another hurdle Nov. 1 when four former executives sued the hedge fund firm, alleging the transaction would wipe out about $30 million of stock they own.
The ex-Sculptor executives asked a New York State Supreme Court judge to postpone a Nov. 16 shareholder vote on the $720 million deal until their case is resolved. The complaint follows a separate legal challenge pending in Delaware Chancery Court.
It's the latest wrinkle in a months-long bidding war for the struggling firm and may provide a fresh opening for a consortium led by hedge fund manager Boaz Weinstein, whose higher offers have been repeatedly rejected by Sculptor. Both court challenges could give Weinstein and his group of billionaire backers — including Marc Lasry, Jeff Yass and Bill Ackman — a path to acquire Sculptor through a tender offer.
The new lawsuit was brought by Akhil Mago, David Becker, Andrew Frank and Nathaniel Ewing, all former executive managing directors at Sculptor. They allege the New York-based firm zeroed out the value of shares that represented deferred compensation they were owed and instead redirected that money to other parties, including Sculptor founder Dan Och and Chief Executive Officer Jimmy Levin.
"These claims are without merit and we will defend against them vigorously," a Sculptor spokesman said in an emailed statement. Rithm declined to comment, and a representative for Och had no immediate comment.
Och left the firm, formerly known as Och-Ziff, as part of a 2019 restructuring, and the four former executives said they agreed to take Class E shares instead of immediately getting cash compensation they were owed.
Last month, as Sculptor sought to persuade Och and a separate cohort of former managers to support the Rithm deal, the hedge fund firm zeroed out the E shares without the former executives' consent, they alleged in the lawsuit. That freed up enough money to allow Rithm to raise its bid and win Och's support, without diminishing Levin's agreed-upon compensation package, according to the complaint.
A total of $127 million worth of E shares would be wiped out under the deal, the lawsuit states. While Levin and other current Sculptor employees are also losing their E shares, they're being offered $35 million in a "retention pool" as well as a long-term compensation program in exchange, the plaintiffs alleged.
Sculptor's "purported discretionary reallocation of $127 million of merger currency, to stakeholders apparently deemed most important to getting the Rithm deal done, comes at the unlawful and direct expense of plaintiffs," they said in the lawsuit.
Under the partnership agreement, Sculptor can't eliminate the payout to the former partners without prior written consent of the majority of the class E shareholders, even in the event of a merger, according to the lawsuit.
