gevel in a courtroom
gevel in a courtroom (Stock photo)

Skadden, Arps, Slate, Meagher & Flom has reached a settlement with the trustee overseeing bankruptcy proceedings involving a hedge fund run by former firm client Alphonse “Buddy” Fletcher Jr.

Terms of the settlement [PDF] call for Skadden to pay the Fletcher International Ltd. estate $4.25 million in order to avoid any potential legal claims stemming from the hedge fund’s bankruptcy, according to court documents filed Friday. The filing notes that the agreement, which was reached last week, requires the approval of federal bankruptcy judge Robert Gerber.

Skadden had long served as outside counsel to Fletcher and his hedge funds before Fletcher International declared bankruptcy in 2012. The filing outlining the proposed settlement notes that the court-appointed trustee in the bankruptcy case, Richard J. Davis, released a prospectus last year that claimed Fletcher used fraud to inflate the value of his investments in the years leading up to the Chapter 11 filing. According to Friday’s filing, the prospectus also said the hedge fund manager’s funds were most likely insolvent as early as December 2008.

According to the settlement, Davis has asserted that Skadden could be a target of legal claims on the basis of his determination that Skadden did not “adequately” protect Fletcher’s funds and their investors in its capacity as outside counsel. Skadden disputed Davis’ claims as “devoid of merit,” while adding that it was prepared to defend itself “vigorously” in the event that Fletcher’s investors pursued any formal legal claims against the firm. Both parties said they agreed to the settlement as a way of avoiding “the expense and uncertainty of such possible litigation,” according to court filings.

The agreement also notes that Skadden refutes Davis’ claims that the firm advised a handful of Fletcher’s funds on various transactions highlighted in his prospectus. Instead, Skadden claims it primarily advised fund manager Fletcher Asset Management and only appeared as counsel for Fletcher International in connection with litigation before the Delaware Court of Chancery. (On Skadden’s website, associate Robert Banerjea’s bio states that his experience includes representing Fletcher International on its investment in Madison Williams Capital.)

A Skadden spokeswoman did not respond to The Am Law Daily’s request for comment.

When Fletcher International declared bankruptcy in 2012, Skadden was one of several law firms listed among the hedge fund’s creditors. Court filings at the time showed that the firm was owed $383,882, according to The Wall Street Journal. Proskauer Rose was listed as Fletcher International’s largest unsecured creditor with a claim of $1.07 million; Kasowitz, Benson, Torres & Friedman and Kirkland & Ellis also have claims.

In addition to the bankruptcy case, some of Fletcher’s jilted investors—including pension funds such as the Firefighters’ Retirement System of Louisiana—filed a separate civil suit in Louisiana federal court claiming that the hedge fund defrauded the pension funds out of more than $100 million.

Fletcher is no stranger to litigation, having founded Fletcher Asset Management after winning a $1.3 million arbitration award as the result of a 1992 racial discrimination suit he brought against his former employer, Kidder, Peabody & Co. Fletcher, who is African-American, also filed a discrimination suit against the co-op board of the tony Manhattan residential building The Dakota in 2011, after the board would not allow him to buy the apartment next door to one he already owned. Meanwhile, Fletcher’s wife, onetime Cravath, Swaine & Moore associate Ellen Pao, continues to battle her own former employer in a high-profile gender discrimination suit she filed against venture capital firm Kleiner Perkins Caufield & Byers in 2012.