A hedge fund that was sued by a trader for refusing to pay him performance-related bonuses even though he earned 97 percent of his revenue has been ordered by the High Court in London to pay him $5.4 million plus interest.
Robert Gagliardi sued his former employer, Evolution Capital Management, in London, alleging the company acted in bad faith by denying him a $7.5 million discretionary bonus after he generated more than $60 million for the firm between April 2021 and March 2022.
The bonus will bring Gagliardi’s total pay for his brief tenure at the fund to more than $12 million. He had already been paid $7 million by Evolution, which included a $625,000 signing bonus, a base salary of approximately $425,000, and a $6 million “new issue bonus” for successfully trading initial public offerings.
Gagliardi, a block trading expert nicknamed “Gags,” alleged that he was told in early 2021 that a return of $10 million over the remaining year would be an “excellent result.” When Gagliardi asked the fund’s founder Michael Lerch for a payout in 2022, he responded: “I’m not going to pay you a bonus, fuck you, sue me.”
Although Evolution did not dispute his exceptional returns, the fund argued that the damage he suffered to his reputation as a result of Gagliardi’s handling of a U.S. Securities and Exchange Commission investigation of some of his previous employer’s trades was outweighed by his performance, and that the bonus was not required to be paid because it was discretionary.
Mr Justice Calver said in his judgment, “There is no doubt that Mr Gagliardi made extraordinary profits for the Fund and Mr Lerch often praised his performance in this regard.” “If (Evolution) had properly complied with the contract, Mr. Gagliardi would have received a discretionary bonus of US$5,385,000.” The judge also said that Gagliardi was Lerch’s “prize property” in Evolution.
Gagliardi’s attorney, Seth Rednis, called the verdict a “conclusive vindication.”
The former Segenti Capital Management employee’s trading was examined during a broader US investigation of Morgan Stanley, which coincided with his employment at Evolution. The High Court was told that during the investigation, Gagliardi’s phone was confiscated by US authorities and he frequently clashed with colleagues.
The hedge fund said the fact that Gagliardi’s trading was examined in the investigation that caused the Wall Street bank to pay a $249 million settlement last year was a factor in its decision not to pay the bonus. In particular, it pointed to his ties with Pawan Pasi, the former head of Morgan Stanley’s US equity syndicate.
In its original filing, Evolution — which had countersued Gagliardi for $7 million in payments he made while he worked there — said the “inappropriate” relationship between the two amounted to a breach of trust.
The hedge fund gave him notice that it was terminating his contract at the end of February 2022. Gagliardi reiterated throughout the trial that he had been cleared of any wrongdoing by the SEC.
While Gagliardi faced intense questioning in court over whether he had deliberately lost his mobile phone, the judge wrote in his judgment that he did not consider the businessman’s evidence to be “dishonestly given”, and said he remained “impressively calm” during his testimony.
Gagliardi also told the court that the subpoena he was served with while he was employed by Evolution also listed some of the “biggest names” in the equity capital markets, and that he “probably would have been insulted” if not included in the document.
Examining his trading history, Paul Downes Casey, representing Evolution, referenced several news reports, one of which described Gagliardi’s trading activity as operating in a “gray area”. Gagliardi dismissed their relevance, saying “these are just journalists” and that their work involved oversimplification “like when I explain it to my mother in Queens”.
In its original filings and throughout the trial, Evolution described Gagliardi as an “abrasive” employee who violated exposure limits on multiple occasions. Evolution argued that this was another reason why it was able to deny him his bonus, although it had not fired him at the time of the alleged crimes.
In written arguments prepared for the High Court trial, which ended in October, Gagliardi’s lawyers said that, after several disagreements, he asked Lerch if he could be made co-chief investment officer in September 2021.
When his request was rejected, Zoltan Varga, a former executive at hedge fund Och-Ziff Capital Management and “a major investor” in Evolution, asked Lerch if he could offer Gagliardi another title. Lerch proposed his own title to Gagliardi: “Fuck Face”.
Gagliardi also claimed that a month later, when Lerch was discussing with colleagues the possibility of the equity capital markets trader leaving Evolution, he commented that if he did so, he would “learn the meaning of discretionary very fast”, referring to the controversial discretionary bonuses.
With Morgan Stanley’s settlement with the SEC, Passey admitted misconduct for leaking confidential information to investors and was fined $250,000. Authorities did not name or announce any action against those who received the information.
Evolution did not immediately respond to a request for comment.
