(Bloomberg) -- Lawyers for hedge fund founder George Weiss allege Jefferies Financial Group threatened to ruin his reputation in the investing industry if he and his namesake firm didn’t agree to a deal that added protections to $100 million in debt owed to Jefferies.
Lawyers for George Weiss made the claim in a Thursday court filing as part of a broader effort to knock-out the key legal claim in Jefferies’ lawsuit over the debt. Jefferies has alleged the founder agreed to personally backstop the obligations of Weiss Multi-Strategy Advisers before the firm filed bankruptcy, which he has denied. The firms are separately fighting over roughly $30 million in bonuses paid to Weiss employees shortly before it shut down.
Jefferies has said in court papers it spent months negotiating a resolution related to the debt in good faith and supported George Weiss and his companies as they sought to raise capital. The firm said it didn’t seek full repayment of the debt until the end of 2023, even though it had a right to do so long before that.
In an emailed statement, a Jefferies spokesperson called George Weiss’ claims “spurious, bad-faith allegations.” Jefferies’ responses in court will put the allegations to rest, the spokesperson said.
Under Duress
The litigation between George Weiss, the Weiss companies and Jefferies revolves around a forbearance deal struck soon after the disputed bonuses were paid. The forbearance agreement was a promise from Jefferies to not demand immediate repayment of the debt if certain conditions were met.
Jefferies, which purchased notes issued by the Weiss companies, sent the firm and its founder an amended forbearance agreement on February 12 just after 2 a.m., according to Thursday’s court filing. George Weiss claims Jefferies threatened to claw back the employee bonuses, freeze bank accounts, bring litigation and “ruin Weiss’s reputation in the industry” if the forbearance wasn’t signed by 7 a.m.
Two hours later, at around 4 a.m., George Weiss and his companies signed the agreement “under duress,” his court filing said. George Weiss never agreed to personally guarantee payment of his firms’ debt to Jefferies or its investment management affiliate, Leucadia Asset Management, according to his court filing. George Weiss alleges Jefferies is misinterpreting the contract.
Discussions occurred shortly after Weiss paid its employees nearly $30 million in bonuses, according to court documents. Jefferies’ lawsuit said the Weiss companies paid the bonuses “without any notice.” At the time, Jefferies said it had informed the companies that it was refraining from enforcing its rights “in exchange for their agreement to not pay unnecessary and improper compensation.”
Weiss has said employee bonuses were typically paid as year-end compensation and were consistent with the companies’ ordinary business practices.
Weiss Multi-Strategy filed bankruptcy in April, about two months after the hedge fund announced it was shuttering and returning capital. The bankrupt firm also sued to recover $20 million from Jefferies, alleging the money either wrongly went to Jefferies over other creditors or was obtained under the threat of litigation.
Earlier this week, Judge Martin Glenn authorized an outside review of payments Weiss made to George Weiss and other executives before the firm filed bankruptcy. Jefferies has said payments to George Weiss or other Weiss officers in the two years before the fund went bankrupt could be voidable under Chapter 11 powers that allow bankrupt companies to recoup payments to corporate insiders.
The case is Jefferies Strategic Investments LLC et al. v. Weiss, in the US District Court for the Southern District of New York.
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