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A top trader has claimed that he was denied a performance-related bonus by his former employer, Evolution Capital Management, despite making 97 per cent of the hedge fund’s revenue over his 11-month tenure.
Robert Gagliardi, a former Segantii Capital Management employee whose trades came under scrutiny during a wide-reaching US probe into Morgan Stanley, alleges that Evolution acted in bad faith by refusing to pay him a $7.5mn discretionary bonus despite the fact he had generated more than $60mn for the firm between April 2021 and March 2022.
In written arguments prepared for a hearing at London’s High Court on Friday, Gagliardi, a block trading specialist nicknamed “Gags”, claimed that when he asked the fund’s founder Michael Lerch for the payout in 2022, he responded: “I’m not going to pay you the bonus, fuck you, sue me”.
Gagliardi is suing Evolution for breach of contract. He alleges that he was told in early 2021 that a return of $10mn over the rest of the year would be an “excellent result”, and went on to generate returns “in excess of $60 million”.
That performance prompted Zoltan Varga, a former executive at hedge fund Och-Ziff Capital Management and “a key investor” in Evolution, to say: “Gotta give it to Gags. Guy sure can make money!” Gagliardi claims.
Evolution, which Gagliardi joined after leaving Segantii, said in its own written arguments that it was entitled to exercise its discretion not to pay the bonus because of the short duration of his employment, alleged breaches of terms of his employment and his “abrasive attitude to senior management.”
Evolution claims the source of the bonus fallout was Gagliardi’s “generally difficult attitude” but that “matters deteriorated” when he was investigated by the US Department of Justice in the course of the probe into Morgan Stanley’s block trading business. He was not ultimately charged with any wrongdoing.
The hedge fund said the fact that Gagliardi’s trades had been scrutinised in the investigation that led to the Wall Street bank paying $249mn to settle last year was a factor in its decision not to pay the bonus.
It pointed to his relationship to the former head of Morgan Stanley’s US equity syndicate, Pawan Passi. In previous court filings for the same case, Evolution said it believed the block trader referred to Passi as his “daddy” who had “put [him] in the fucking game” on block trades.
In its Friday filing Evolution — which is countersuing Gagliardi for the $7mn it paid him while working there — said the “inappropriate” relationship between the two amounted to a breach of trust. The hedge fund gave him notice that it was terminating his contract in late February 2022.
Gagliardi reiterated in his own filing on Friday that following a thorough investigation by the US Securities and Exchange Commission, he had been cleared of any wrongdoing. He also denies that there was anything inappropriate about his relationship with Passi.
Alongside Morgan Stanley’s settlement with the SEC, Passi admitted to misconduct for leaking confidential information to investors and was issued with a $250,000 penalty. The authorities did not name or announce any actions against recipients of the information.
Segantii, which was one of Asia’s largest hedge funds, with almost $5bn in assets under management, told investors last year it would hand back their money, weeks after Hong Kong’s Securities and Futures Commission announced it was bringing criminal proceedings against the firm, its founder Simon Sadler and former trader Daniel La Rocca for insider dealing. They have each pleaded not guilty.
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