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A Delaware Supreme Court ruling against a defunct hedge fund affiliated with the Perot Family Trust will make it easier for hedge fund investors to investigate legal claims against closed hedge funds. The court’s Aug. 12 en banc ruling in Parkcentral Global L.P. v. Brown Investment Management L.P. affirmed a May 11 Delaware Court of Chancery ruling. In the lower court, Vice Chancellor Travis Laster ordered defunct hedge fund Parkcentral to give Brown Investment the names and addresses of the fund’s other limited partners. According to court records in an unrelated Northern District of Texas class action, In Re Parkcentral Global Litigation, The Perot Family Trust wholly owns and controls Parkcentral Capital Management L.P. Parkcentral Capital is the general partner to and investment adviser for Parkcentral Global. The fund lost between $2 billion and $3 billion in November 2008 due to devaluation of its commercial mortgage-backed securities investments. Chief Justice Myron Steele wrote that federal regulations implementing the Gramm-Leach-Bliley Financial Modernization Act of 1999, which protects the privacy of financial institution customers, do not bar Parkcentral from disclosing the shareholder list to Brown Investment. The regulations do not pre-empt a Delaware law that “entitles limited partners to access partnership information and records if they make a reasonable demand for a purpose reasonably related to their interest as a limited partner,” Steele wrote. “Disclosure of the list of the limited partners’ names and addresses to another limited partners falls within that exception because [Delaware law] requires it,” Steele wrote. “[W]e also conclude that Parkcentral’s limited partners are not ‘unaffiliated third parties’ whose identities the Privacy Regulations would protect from disclosure.” The ruling “changes the playing field so that individual investors can get together, pool their resources and determine whether there was any mismanagement at the fund,” said Amir Alavi, a partner at Houston’s Ahmad, Zavitsanos & Anaipakos who is of counsel for Brown Investment. An individual investor who lost $1 million in a hedge fund, for example, wouldn’t want to spend $200,000 to $300,000 on forensic accounting to see whether there’s a legal claim, Alavi said. “There will be a fundamental change in the way investors and hedge fund managers deal with each other when there are catastrophic losses in a fund,” Alavi said. The ruling has “far reaching implications outside of Delaware” because many U.S. companies are incorporated there, Alavi said. Delaware is known for its business-friendly corporate laws and most state supreme courts look to Delaware for guidance on corporate issues. The ruling may also help the plaintiffs in the Texas class action, Alavi said. “If those plaintiffs decide to request a list of investors, they’re now free to do so because of the Delaware ruling,” he said. Texas District Judge Barbara Lynn on Aug. 5 dismissed the class action against the Parkcentral defendants, which include The Perot Family Trust, several related entities and two trust officers, but gave the plaintiffs leave to replead breach-of-fiduciary-duty, joint-enterprise and other claims. The Texas plaintiffs had no comment regarding the Delware ruling, said James Jaconette, a partner at Robbins Geller Rudman & Dowd in San Diego. Parkcentral’s lawyer on the case — R. Judson Scaggs Jr., a partner at Wilmington, Del.-based Morris, Nichols, Arsht & Tunnell — declined comment, as did David Radunsky, chief operating officer and general counsel of Parkcentral Capital. Timothy McCormick, a partner at Dallas-based Thompson & Knight and a defense lawyer in the Texas case, declined to comment on either the Texas or Delaware cases. Sheri Qualters can be contacted at [email protected].

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