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Sexual misconduct case rocks $47bn asset manager GoldenTree

Sexual misconduct allegations at a prominent New York asset manager have ignited a multimillion-dollar legal dispute that offers a revealing insight into the inner workings of the business.

GoldenTree Asset Management, a hedge fund that manages $47bn of credit market investments on behalf of public pension funds and other institutional clients, fired its chief operating officer William Christian at the beginning of 2020.

His dismissal came during the early stages of an internal investigation that detailed a litany of misconduct by Christian, including misuse of an expense account, lying to management about his affair with a more junior colleague, and showing an obscene selfie to a colleague.

The ensuing fight over Christian’s pay and assets unfolded in confidential hearings lasting more than a year before bursting into public view this month, when he filed a lawsuit claiming GoldenTree had failed to give him $1.2mn in back pay and interest that he had been awarded by a private arbitrator.

Legal filings in the case provide an unusually detailed view of a firm that holds out its partnership structure and the fact that many executives invest in its own products alongside clients as a way of winning trust.

They also offer an unflattering picture of life inside GoldenTree, a distressed debt group founded by Steven Tananbaum at the turn of the millennium with a tight-knit group of industry veterans. Christian, who joined in 2004, has known Tananbaum since they both worked at asset manager MacKay Shields in the 1990s.

Christian’s affair with a more junior female GoldenTree employee “was general knowledge” on the floor where they worked, according to the arbitrator’s ruling, and “people felt it was interfering with work”. But the relationship seemingly went undiscovered by the firm’s leadership, until an examination of Christian’s office email account — as part of the internal investigation involving GoldenTree’s then top internal lawyer Barry Ritholz — revealed the pair had taken a chromosomal test often used by expectant parents.

Ritholz’s investigation uncovered a pattern of misconduct that extended well beyond an undisclosed office romance. Christian sometimes conducted meetings with his trousers pulled down to his ankles, according to an arbitration ruling that was later filed in court, something he sought to excuse by saying he needed to “ice his knees”.

The former executive also made “disgusting sexual comments at lunches and dinners with associates”, the arbitrator found. Ritholz testified in an arbitration hearing that one female GoldenTree employee complained of Christian’s vulgar remarks about her appearance. Christian at one point ordered his assistant to buy merchandise from a pornographic website, Ritholz added, leaving her distraught.

Christian filed his arbitration claim against GoldenTree in June 2020. He did not respond to a request for comment.

The firm hit back with a demand that he repay nearly $13mn in salary, bonuses and other benefits he had received from GoldenTree since 2012 when, in one of the earliest incidents the firm complained of, he began using company money to pay for a storage locker near his home in New Jersey.

The arbitrator rejected some of the company’s demands, and in a ruling issued last month ordered GoldenTree to hand over a $1.2mn bonus that the firm had withheld for nearly a year. Christian filed his lawsuit three weeks later, after the money allegedly failed to arrive.

GoldenTree paid Christian $800,000 days after the lawsuit was filed, according to a wire transfer receipt filed in New York State court. The firm claims that the remaining sum is covered by amounts it has previously advanced to Christian.

On top of his unpaid bonus, Christian has been fighting to assert ownership over investments worth several millions of dollars that he accumulated while working at the firm.

The arbitrator denied part of that claim, ruling he must surrender his profit share from the firm’s investments and other deferred pay, as well as his financial interest in the office art collection. But he will keep more than $2mn of GoldenTree-related investments that he paid for his with own money.

Details of these assets reveal in unusual detail some of the structures that GoldenTree executives use when they invest in the firm’s own funds. This is done using cash borrowed from Deutsche Bank and other lenders by a special-purpose vehicle in which the executives have ownership interests.

Ritholz testified in arbitration that this means the lenders do not have a claim on the partners personally if the investments underperform.

The core of Christian’s holdings are stakes in GoldenTree investments, including its shareholding in Bawag, an Austrian bank the fund helped to rescue in 2007.

Those holdings, which also include stakes in half a dozen GoldenTree funds, reflect the firm’s position as one of the leading bond and distressed debt specialists in the US, an influential creditor in the bankruptcies of prominent entities including Puerto Rico and the California utility PG&E.

Yet the assets Christian owns from his employment at GoldenTree also include a stake in Algorand, described in court papers as “a cryptocurrency investment in which a GoldenTree partner was involved and in which certain partners, including Christian, invested”.

Algorand was set up in 2017 to try to commercialise an alternative to Bitcoin that uses less power and supports advanced features such as “smart contracts” that are executed by computers without human intervention.

Tananbaum, Ritholz and other GoldenTree executives became early backers of the venture after their firm deployed some of its staff to conduct due diligence and other preparatory work before they invested.

No GoldenTree clients have invested in Algorand. “[It is] not a GoldenTree product,” Ritholz testified in arbitration, “but it’s serviced by GoldenTree”.

Industry executives say it is not unusual for a Wall Street partnership to use company resources to provide analytical and other support to an investment that is not available to clients.

Some clients may have qualms about such “personal account” investing, according to Charles Elson, a corporate governance expert at the University of Delaware. “If you invest in a fund,” he said, “you are expecting the fund managers to be focusing on your investment, not theirs.”

But others may look favourably on the sideline as experience of investing in technology that is gaining influence even in old-economy companies.

Just last December, GoldenTree agreed to provide rescue financing to Talen Energy, a US power generator brought low by rising gas prices.

Not long before the deal closed, Talen announced a joint venture named Nautilus. The $175mn initiative will mine cryptocurrency using power from Talen’s nearby nuclear power station, injecting new economic life into an asset that looked like the future when ground was broken in 1973.

This article has been updated to correct the spelling of Barry Ritholz’s name.

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