Delaware Chancery Court Orders Hedge Fund to Return $40 Million Seed Investment


An investment fund (the Lerner Fund) controlled by Randy Lerner, the owner of the Cleveland Browns, recently obtained a court order for the return of the remainder of its $40 million seed investment in a hedge fund (the Paige Fund) managed by Paige Capital Management LLC. After the expiration of the three year lock-up period, the Lerner Fund sought to redeem its full investment. The Paige Fund and its managers (the Paiges) refused to allow the full redemption and instead attempted to apply a “gate” provision in the Paige Fund’s partnership agreement that limited redemptions if they would cause more than 20% of the fund’s assets to be withdrawn. The Lerner Fund was the only investor in the fund other than a principal of the Paiges, and its redemption request, if honored, would have resulted in the withdrawal of 99.9% of the Paige Fund’s assets.

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