NewsmakersOctober 17, 2024

LSV Asset Management Sued by Former Execs Over $100M in Lost Equity

An Illinois lawsuit alleges the plaintiffs resigned or retired, believing they would retain ownership in the firm.

Reported by Michael Katz

LSV Asset Management is facing a filed by four former executives who claim they were deprived of more than $100 million when the investment firm forced them to sell their equity at a significantly reduced price.

The lawsuit also names as defendants Josef Lakonishok, LSV’s CEO, CIO and founder, along with current LSV executives Josh O’Donnell, Kevin Phelan and Menno Vermeulen. According to the company’s website, Phelan and O’Donnell are LSV’s chief operating officer and chief compliance officer, respectively, while Vermeulen is a portfolio manager and senior quantitative analyst.

The plaintiffs in the complaint, filed in the Circuit Court of Cook County, Illinois, are Han Qu, Bhaskaran Swaminathan, Peter Young and Simon Zhang. Young held the title of director of client portfolio services, Swaminathan formerly was director of research, Zhang was a senior quantitative analyst, and Qu was a senior quantitative analyst and one of LSV’s founding employees. According to the complaint, the four collectively worked at the firm for more than 90 years.

The four allege that during their tenure at LSV, they were pressured by management to acquire shares as a “sign of loyalty” and of “being a team player.” They ended up paying more than $25 million for equity in the firm, which they say was largely financed by bank debt and purportedly entitled them to millions of dollars in annual distributions. The lawsuit alleges LSV represented to the plaintiffs repeatedly throughout their employment that they would own the purchased shares outright when the bank debt was paid off.

According to the complaint, the four plaintiffs invested more than $2 million in cash—which it said was difficult for many of them to cover—and incurred more than $22 million in bank debt. The complaint also alleges they were required to forego salaries and other pay raises during most of their careers in exchange for the purported benefits of buying equity shares in LSV. They also claim LSV encouraged them to incorporate the shares in their estate plans, which led the four to either resign or retire under the belief they would retain ownership and continue to receive distributions after they left.

“Plaintiffs would not have resigned or retired if they knew defendants intended to strip them of the purchased LSV shares the minute they left the company,” the complaint states.

“LSV utilized a web of agreements for the purpose of retaining control over LSV employee stock,” the plaintiffs’ lead attorney, Brian Procel, a partner at Procel Law PC, said in a statement. “And just like a yo-yo, LSV pulled the string at the time of its choosing, to deprive its own executives of the shares they worked for decades to acquire.” The plaintiff’s are also represented by Duggan Bertsch.

Tim Spreitzer, a spokesperson for LSV Asset Management, said in an emailed statement that the firm “believes the claims are rife with inaccuracies and without merit and intends to vigorously defend itself in any future proceedings,” adding that the lawsuit is not related to the firm’s investment management activities for its clients.

Publicly traded financial services company SEI Investments, which owns a 38.6% stake in LSV, declined to comment.