H. Gavadian, S. Samuels,
Business management
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Negligence & Business Judgment Rule in Investment Management: Hecht v. Andover Associates, Summaries of Mathematics
A court case where charlie hecht brought legal action against andover associates management company and ivy asset management corp. For negligence in investing with bernard l. Madoff investment securities llc, which turned out to be a ponzi scheme. The issues of duty to investigate, negligence, and the application of the business judgment rule in this case.
Typology: Summaries
2023/2024
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H. Gavadian, S. Samuels,
Business management
Haik Gavadian Sandor Samuels BLAW 308 5 February 2018 Hecht v. Andover Assoc. Mgmt. Co Facts: Charlie Hecht made some investments in Andover Associates LLC I. Andover Associates Management Company was the LLC’s managing member. Andover Management kept Ivy Asset Management Corp. as its consultant. Ivy recommended Andover use Madoff who also charges much less for his services. Madoff was discovered to be a Ponzi scheme in December 2008. On the behalf of Andover Associates, Hecht brought legal action against Andover Management and Ivy on several grounds in NY Supreme Court. Hecht alleged that Ivy was negligent in recommending Madoff’s firm without performing a sufficient “due diligence” investigation of their operation. Hecht alleged that Andover Management was negligent in failing to react to the suspicious confirmation slips and other red flags Andover Associates would have learned of Madoff’s fraud and saved their assets. Andover management asked the court to dismiss Hecht’s complaint by citing the business judgment rule, a rule protecting managers from liability in good faith agreements. Issue: Did Andover Management have the duty to have an investigation of Madoff prior to giving Madoff management of Associates investments Should Managements actions be considered negligent? Does the Business judgment rule apply in Managements case of hiring new investors? Did Andover management breach the duty of diligence and prudence by delegating management of investments to Madoff without conducting any investigation?
complete disregard for their Associates. Uncovering the fact that Madoff was a fraud after it was too late does not show diligence. Management’s motion to dismiss the negligence claim is denied. Conclusion: Andover Management’s motion to dismiss denied in favor of Hecht.