Former WL Ross exec sues firm to access fund records

David Storper filed a complaint demanding books and records and insinuating possible mismanagement at the distressed debt shop.

Former top-tier executive at WL Ross David Storper has filed a lawsuit demanding that the firm provide books and records for inspection after finding unexplained discrepancies in his final distribution statements. The complaint questions whether some WL Ross funds were managed in the best interests of their LPs and insinuates “possible self-dealing” by managing members.

Storper served as senior managing director and a member of the investment committee at WL Ross and had worked with founder and well-known turnaround investor Wilbur Ross since the late 1990s. Storper left to found Army Merchant Holdings in 2012. In April 2014, he received a final distribution notice from WL Ross that “raised significant questions,” according to a complaint filed with the Delaware Chancery Court accessed by pfm.

Although the distribution was paid in April 2014, it apparently reflected asset values from September 2012 and included a $92,402 discrepancy between the value of Storper’s capital account and the value stated in Storper’s Form K-1, the complaint stated.

More than eight months of back and forth and “delay tactics” ensued as Storper requested an explanation for the anomalies in the final distribution, but the additional information he received only prompted more questions.

A June response from WL Ross, which is owned by Invesco, included a one-page summary showing large, irregular amounts charged as “direct expenses,” including $547,712 of expenses that were charged in one year without itemization or explanation.

A November letter notified Storper of an upcoming tax distribution of $14.8 million. The only explanation for the large distribution was a vague reference to “certain positions held by the Funds” as being “in unrealized loss positions,” creating a purported “timing difference…between the allocations of taxable income related to carried interest and actual carried interest payments,” according to the suit.

In late January, Storper’s lawyers demanded the inspection and copying of books and records from three WL Ross funds and three related entities: WLR Recovery Associates II, WLR Recovery Associates III, WLR Recovery Associates IV, Ross CG Pearl Associates, Ross CG Cypress Associates, and Ross CG Associates.

WL Ross responded stating that they would not provide Storper with any financial statements, tax returns or other documents unless he entered into a confidentiality agreement and used the information only to evaluate “his interest in the funds and not for any other purpose, including any purpose permitted under Delaware law.”

Storper refused to sign the confidentiality agreement, stating the restrictions infringed on his ability to enforce his rights as a member or limited partner of the respective entities. He is now using the “books and records” action in order to inspect and copy the information set forth in his demands.

Neither Storper nor WL Ross immediately responded to requests for comment.