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SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK
-------------------------------------- X
:
DAVID H. STORPER, DAVID WAX, and : Index No.
PAMELA K. WILSON, derivatively on behalf :
of WLR RECOVERY ASSOCIATES II, LLC, :
WLR RECOVERY ASSOCIATES III, LLC, :
and WLR RECOVERY ASSOCIATES IV, :
LLC, : COMPLAINT
:
Plaintiffs, :
:
-against- :
:
WL ROSS & CO., LLC, WL ROSS GROUP,
:
L.P., and WILBUR L. ROSS,
:
Defendants.
-------------------------------------- X

Plaintiffs David H. Storper, David Wax, and Pamela K. Wilson (collectively, Plaintiffs)

by their undersigned attorneys, for their Complaint against defendants WL Ross & Co., LLC

(WL Ross), WL Ross Group, L.P. (Ross Group), and Wilbur Ross (collectively,

Defendants) in the right of WLR Recovery Associates II, LLC, WLR Recovery Associates III,

LLC, and WLR Recovery Associates IV, LLC, and suing on behalf of all members thereof

similarly situated, allege as follows:

NATURE OF THE ACTION

1. WL Ross is a global private equity firm, which creates and manages private

equity funds, and has approximately $4.6 billion in assets under management.

2. WL Ross employees were required to make significant investments into

companies (defined herein as GPs) formed to help manage the associated private equity funds.

In return, the employees received rights to receive shares of the profits and other gains earned by

the GPs. These rights to share in the gains of the GPs were a significant part of employee

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compensation at WL Ross. Moreover, these rights are retained by employees even after they

leave WL Ross.

3. The derivative plaintiffs in this action are former employees of WL Ross, who

collectively invested millions of dollars in GPs during their WL Ross careers, and collectively

own approximately 20 % percent of each of the entities at issue here.

4. The Defendants, as fiduciaries of the GPs, had obligations to ensure the GPs

received the appropriate economic benefits. But the Defendants blatantly violated those

obligations to enrich themselves. They charged the GPs millions of dollars in fees (at rates even

exceeding what could be charged to investors), took those fees for themselves, and completely

concealed their conduct.

5. In the fall of 2017, Plaintiffs discovered that WL Ross wrongfully charged

millions of dollars of management fees to the general partner entities it created to manage its

flagship private equity funds. In all, Plaintiffs found that at least $48 million in management fees

had been improperly charged to three general partner entities.

6. These charges are barred by the limited partnership agreements governing the

private equity funds. The agreements allow management fees to be charged to fund investors,

not the general partners. Moreover, the management fees charged to the general partners were

assessed at rates far beyond what is even allowed to be charged to the investors in the funds.

7. WL Ross, as the managing member of general partner entities, breached its

fiduciary duty of care to the members of those entities by causing and allowing the fees to be

charged, and breached its duty of loyalty by directing the fees to itself.

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8. Further, WL Ross concealed these management fees from the members of the

general partner entities by failing to disclose capital statements to its members which included a

line item for management fees until, upon information and belief, the summer of 2016.

9. Plaintiffs demanded an explanation and additional documents from WL Ross, but

received incoherent and incomplete answers which did not match up with data on the face of the

capital statements WL Ross had itself prepared and disseminated. Plaintiffs followed up, but

received no response.

10. Plaintiffs bring this action on behalf of the general partner entities to force WL

Ross to provide a full accounting of the affairs of the general partner entities and to pay

restitution and disgorge any improper payments it received or caused the entities to pay.

JURISDICTION AND VENUE

11. This Court may exercise personal jurisdiction over Defendants pursuant to

Sections 301 and 302 of the New York Civil Practice Law and Rules (CPLR). Among other

things, Defendants regularly transacts business in New York. Moreover, the events, actions and

transactions described herein substantially and primarily occurred in New York.

12. Venue is proper in this Court pursuant to CPLR Section 503 because Plaintiff

David Storper resides in this county and the principal offices of the entities Plaintiffs are

representing in this derivative action are located in this county.

PARTIES

13. Mr. Storper was a Senior Managing Director of WL Ross from approximately

April 2000 until late 2012. In addition, Mr. Storper is a member of WLR Recovery Associates II

LLC (WLR II), WLR Recovery Associates III LLC (WLR III), and WLR Recovery

Associates IV LLC (WLR IV) (collectively, the WLR GPs). Mr. Storper is, and has at all

relevant times been, a resident of the State of New York.

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14. Mr. Wax was former employee of WL Ross from approximately 2000 until mid-

2015. In addition, Mr. Wax is a member of the WLR GPs. Mr. Wax is a resident of the State of

Florida.

15. Ms. Wilson was former employee of WL Ross from approximately 2000 until

early 2013. In addition, Ms. Wilson is a member of the WLR GPs. Ms. Wilson is a resident of

the State of Florida.

16. WLR II is a Delaware limited liability company, with its principal office in New

York. WLR II is a resident of New York. WLR II is the general partner of WLR Recovery Fund

II, L.P. (WLR Fund II). Upon information and belief, defendant WL Ross is the managing

member of WLR II.

17. WLR III is a Delaware limited liability company, with its principal office in New

York. WLR III is a resident of New York. WLR III is the general partner of WLR Recovery

Fund III, L.P. (WLR Fund III). Upon information and belief, Defendant WL Ross is the

managing member of WLR III.

18. WLR IV is a Delaware limited liability company, with its principal office in New

York. WLR IV is a resident of New York. WLR IV is the general partner of WLR Recovery

Fund IV, L.P. (WLR Fund IV). Upon information and belief, Defendant WL Ross is the

managing member of WLR IV.

19. Defendant WL Ross is a global investment and private equity firm which is well-

known for its strategies of investing in distressed companies and for helping restructure and

turnaround struggling businesses. WL Ross is, and has at all relevant times been, a Delaware

limited liability company registered to transact business in the State of New York with its

principal place of business in New York, New York.

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20. Defendant Ross Group is a New York limited partnership, with its principal office

in New York, New York. Upon information and belief, Ross Group was the managing member

of WLR GPs until recently, when it was succeeded in those roles by WL Ross. Ross Group is an

entity which is completely controlled by Wilbur Ross, through a single member LLC, El

Vedado, LLC, a New York limited liability company.

21. Defendant Wilbur L. Ross was the Chairman and Chief Strategy Officer of WL

Ross until earlier this year, when he was appointed Secretary of the United States Department of

Commerce. Mr. Ross was also previously the Chief Executive Officer of Invesco Private

Capital, Inc., the direct parent company of WL Ross. Mr. Ross was the original managing

member of WLR II and WLR III, until he assigned his interest to Ross Group, an entity under his

sole control and authority. On information and belief, Mr. Ross is a resident of the State of New

York.

FACTUAL BACKGROUND

The Private Equity Structure

22. Private equity firms like WL Ross are investment management businesses which

source, execute, and manage investments in the debt and equity of various types of companies on

behalf of their clients. They do this by raising individual private equity funds which invest

according to one or more specific investment strategies.

23. The individual investment funds are typically structured as partnerships, which

are composed of general and limited partners. Most of the capital of the funds is solicited from

outside investors, each of whom is a limited partner, or LP. Despite contributing much of the

capital, LPs are passive investors who do not participate in management of the fund.

24. The funds general partner, or GP, is formed by investment managers employed

by the private equity firm, and (in the case of WL Ross funds), is usually structured as an LLC.

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The investment managers are members of the LLC and will invest some amount of their own

capital into the underlying fund. The invested capital of the GP members is aggregated and

invested as the GPs own subscription in the fund.

25. The GP provides investment expertise in selecting, managing, and disposing of

fund assets. The GP earns a fixed management fee for its time and services (for example, one

and one-half percent of the aggregate subscriptions of the LPs) which it may (and often does)

pass on to the private equity firm. The GP also earns a portion of the gross profits from the fund

(for example, twenty percent of the funds profits above some defined benchmark), referred to as

carried interest.

26. In practice, private equity firms and their employees control everything related to

the individual funds they raise. However, the GP entities for each fund are legally vested with

sole authority to manage and control the funds, although they may delegate management

authority to the firm or other affiliated entities if it so chooses.

27. The managing member of the LLCs owe the non-managing members fiduciary

duties, and because of its legal authority and control over the GP and underlying fund, it must

make sure that the non-managing members of the GP receive the appropriate economic benefits,

including carried interest and any fees due to them.

WLR Fund II and WLR II

28. In late 2001, WLR II was formed to act as the GP of WLR Fund II. WLR Fund II

is a Delaware limited partnership formed for the purpose of operating as a private equity fund

and investing its capital for the benefit of its LPs.

29. The management, policies and control of WLR Fund II is vested exclusively in

its GP, WLR II. The managing member of WLR II is, in turn, vested with exclusive control over

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WLR II. Accordingly, the managing member of WLR II holds all authority and control of WLR

Fund II itself.

30. The original managing member of WLR II was Wilbur Ross. In 2005, Mr. Ross

assigned his membership, including his managing member status, to Ross Group, an entity under

his sole control and authority. On information and belief, Ross Group recently assigned its

membership and status as managing member to WL Ross. On information and belief, WL Ross

is the current managing member of WLR II and is a successor-in-interest to Ross Group and Mr.

Ross (the Prior Managing Members). The managing member of WLR II owes a fiduciary duty

to WLR II and its non-managing members.

31. WLR II is entitled to an annual management fee from WLR Fund II.

32. The operative agreement for WLR Fund II provides that it must pay an annual

management fee to the general partner, WLR II, or an entity designated by WLR II; if the

general partner earns any other fees in connection with its role in managing WLR Fund II or its

investments (such as transaction or board fees), it must partially reduce its management fee

accordingly and provide notice of such fees in certain circumstances; and the general partner

shall receive no salaries from the WLR Fund II for its management efforts other than the

management fee.

33. Although the agreement states that management fees are calculated based on

Subscriptions, without specifying whether it is referring to LP subscriptions only, or the GP

subscription as well, it is clear from the language and context of this and other provisions, that

management fees are only to be charged to the LPs.

34. For example, management fees are paid to the GP or an entity it designates; it

makes no sense for the GP to pay a management fee to itself, and it would be self-defeating for

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the GP to assess a management fee on itself and hand it over to another entity. Moreover, the

agreement provides that management fees are the only compensation the GP receives, and if it

receives any other fees or compensation in excess of the management fees, it must provide notice

to the limited partners (only) and reduce its management fee. There are many other clauses in

the agreement which further indicate that management fees are only to be charged to the limited

partners.

WLR Fund III and WLR III

35. Similarly, in 2005, WLR III was formed to act as the GP of WLR Fund III. WLR

Fund III is a Delaware limited partnership formed for the purpose of operating as a private equity

fund and investing its capital for the benefit of its LPs.

36. The management, policies and control of WLR Fund III are vested exclusively

in its GP, WLR III. The managing member of WLR III is, in turn, vested with exclusive control

over WLR III. Accordingly, the managing member of WLR III holds all authority and control of

WLR Fund III itself.

37. The original managing member of WLR III was Mr. Ross. Mr. Ross later

assigned his membership, including his managing member status, to Ross Group, an entity under

his sole control and authority. On information and belief, Ross Group recently assigned its

membership and status as managing member to WL Ross. On information and belief, WL Ross

is the current managing member of WLR III and is a successor-in-interest to the Prior Managing

Members. The managing member of WLR III owes a fiduciary duty to WLR III and its non-

managing members.

38. WLR III is entitled to an annual management fee from WLR Fund III.

39. The operative agreement for WLR Fund III provides that it must pay an annual

management fee to the general partner, WLR III, or an entity designated by WLR III; if the

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general partner earns any other fees in connection with its role in managing WLR Fund III or its

investments (such as transaction or board fees), it must partially reduce its management fee

accordingly and provide notice of such fees in certain circumstances; and the general partner

shall receive no salaries from the WLR Fund III for its management efforts other than the

management fee.

40. Although the agreement states that management fees are calculated based on

Subscriptions, without specifying whether it is referring to LP subscriptions only, or the GP

subscription as well, just as with the WLR Fund II agreement, it is clear from the language and

context of this and other provisions that management fees are only to be charged to the LPs.

WLR Fund IV and WLR IV

41. In 2007, WLR IV was formed to act as the GP of WLR Fund IV. WLR Fund IV

is a Delaware limited partnership formed for the purpose of operating as a private equity fund

and investing its capital for the benefit of its LPs.

42. The management, policies and control of WLR Fund IV is vested exclusively

in its GP, WLR IV. The managing member of WLR IV is, in turn, vested with exclusive control

over WLR IV. Accordingly, the managing member of WLR IV holds all authority and control of

WLR Fund IV itself.

43. The original managing member of WLR IV was Ross Group an entity under the

sole control and authority of Wilbur Ross. On information and belief, Ross Group recently

assigned its membership and status as managing member to WL Ross. On information and

belief, WL Ross is the current managing member of WLR IV and is a successor-in-interest to

Ross Group. The managing member of WLR IV owes a fiduciary duty to WLR IV and its non-

managing members.

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44. WLR Fund IV pays an annual management fee to a designated Management

Company.

45. The operative agreement for WLR Fund IV provides that the annual management

fee is paid by WLR Fund IV based on the subscriptions of its limited partners only; management

fees are not to be charged to its GP, WLR IV.

Plaintiffs Uncover Improper Management Fees Charged to the GPs

46. Plaintiffs are former executives of WL Ross. In their position at WL Ross,

Plaintiffs helped manage investments made by private equity funds created by the firm.

47. In that role, Plaintiffs were also was required to invest personally in several GP

entities. Plaintiffs subscribed to and thus became a member of several GP entities, including the

WLR GPs.

48. Plaintiffs continue to be a member of each of those LLCs. On information and

belief, Plaintiff David Storper is currently the member with the largest interest in these entities

that is not affiliated with WL Ross.

49. On or about August 2016, WL Ross made certain capital statements and fund

documents for the WLR GPs available to Plaintiffs via a cloud-based web portal.

50. In the fall of 2017, Plaintiff Storper reviewed certain of these capital statements.

The statements showed, to his astonishment, that millions of dollars of management fees had

been charged to the WLR GPs.

51. Specifically, the financial statements showed that more than $4.8 million in

management fees has been charged to WLR II, more than $10.8 million had been charged to

WLR III, and more than $32,500,000 had been charged to WLR IV, since the creation of those

general partner entities.

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52. These charges were entirely improper. First, as discussed above, the operative

fund agreements provide that management fees are to be charged to limited partners only.

53. Second, these fees were at rates far in excess of what was even permitted to be

charged to the LPs, under the fund agreements.

54. WL Ross and the Prior Managing Members violated their fiduciary duties to the

WLR GPs and their members by allowing and causing these management fees to be charged to

the WLR GPs.

55. WL Ross further breached its duty of loyalty to the WLR GPs and their members

because, on information and belief, WL Ross was the party that received and benefited from the

management fees.

56. In addition, WL Ross and the Prior Managing Members concealed these fees from

the members of the WLR GPs by failing to provide their members with capital statements which

included a line item for management fees until, upon information and belief, the summer of

2016. This was the first time WL Ross provided Plaintiffs with any documents or information

which showed that management fees were charged to the WLR GPs and, on information and

belief, other members of the WLR GPs were likewise kept in the dark.

57. This is not the only time that WL Ross has acted improperly vis--vis

management fees. In August 2016, the Securities and Exchange Commission found that WL

Ross violated the Investment Advisors Act of 1940 by failing to disclose its fee allocation

practices to certain private equity funds it advised and their investors, which resulted in the funds

paying higher management fees between 2001 and 2011. On information and belief, Invesco,

Ltd. and Invesco Private Capital, Inc., the parent companies of WL Ross, have also paid millions

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of dollars in penalties and reimbursements related to bad management fee practices in the last

few years.

Plaintiffs Demand Answers But Receives None

58. On October 2, 2017, Plaintiff Storper sent an email to Gregory Stoeckle and

Stephen Toy, co-heads of WL Ross, in which he demanded answers and additional documents

regarding the charging of management fees to the WLR GPs. (See Exhibit A.)

59. Messrs. Stoeckle and Toy responded to Storper on October 4, 2017. (See Exhibit

B.) They failed to provide a coherent explanation for why management fees were being charged

to the WLR GPs. For example, they admitted that management fees were not allowed to be

charged to WLR IV, but failed to explain why more than $32,500,000 in management fees had

already been charged to that entity. The executives completely failed to address Storpers

request for additional documents.

60. Storper sent an additional email on October 6, 2017, in which he demanded a

clear explanation for the charging of management fees to the WLR GPs, including the formula

used to calculate such fees. (See Exhibit C.)

61. WL Ross never responded to his October 6, 2017 email.

Demand Futility

62. Plaintiffs bring this action derivatively as members of WLR GPs. It would be

futile to make a demand that the WLR GPs initiate litigation to pursue these claims because

those entities are managed by WL Ross, the entity that caused these fees to be paid and received

and benefited from the improper payment of management fees. Making such a demand would

essentially be asking WL Ross to commence litigation against itself. Furthermore, the co-heads

of WL Ross were already presented with the evidence of improperly charging the WLR GPs

management fees and have refused to acknowledge the issue.

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63. Plaintiffs will adequately and fairly represent the interests of the WLR GPs, and

their members, in enforcing and prosecuting their rights, and have retained counsel experienced

in litigating this type of action. Furthermore, on information and belief, Plaintiff Storper is the

member with the largest interest in the WLR GPs that is unaffiliated with WL Ross. Thus,

Plaintiffs have a significant financial motive for zealously representing the WLR GP entities and

forcing any party that has committed impropriety to return and disgorge any ill-gotten gains.

FIRST CAUSE OF ACTION

(Seeking an Accounting for WLR Recovery Associates II, LLC against all Defendants)

64. Plaintiffs repeat and reallege the allegations above as if fully set forth herein.

65. Plaintiffs and other members of WLR II entrusted their capital to the managing

member of WLR II, WL Ross, and its predecessors-in-interest.

66. As the managing member of WLR II, a Delaware LLC, WL Ross owes WLR II

and its members, including Plaintiffs, fiduciary duties.

67. WL Ross and its predecessors-in-interest, Ross Group and Wilbur Ross,

wrongfully caused and allowed management fees to be charged to WLR II, thereby

misappropriating assets of WLR II and depriving its members of substantial sums of money,

which is rightfully due to them. Such conduct constituted a breach of Defendants fiduciary

duties to the members of WLR II. Defendants further breached their fiduciary duties as set forth

above.

68. Plaintiffs duly demanded that WL Ross account for improperly charging WLR II

management fees, but WL Ross has refused to do so.

69. The non-managing members accounts have not been judicially settled and there

has been no open repudiation by the managing member of its obligations. Furthermore, the

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managing member and its predecessors-in-interest have fraudulently concealed the information

giving rise to this claim for many years.

70. Plaintiffs have no adequate remedy at law for Defendants wrongful conduct as

set forth above.

71. By reason of the foregoing, Plaintiffs are entitled to a full accounting of the affairs

of WLR II. Plaintiffs are also entitled to restitution, and disgorgement for any sum or balance

found to be due to WLR II following an accounting, and interest, costs, and disbursements,

including attorneys fees.

72. Plaintiffs further request an order permanently restraining and enjoining WL

Ross, or any affiliates under its control, from causing or allowing management fees to be charged

to WLR II.

SECOND CAUSE OF ACTION

(Seeking an Accounting for WLR Recovery Associates III, LLC against all Defendants)

73. Plaintiffs repeat and reallege the allegations above as if fully set forth herein.

74. Plaintiffs and other members of WLR III entrusted their capital to the managing

member of WLR III, WL Ross, and its predecessors-in-interest.

75. As the managing member of WLR III, a Delaware LLC, WL Ross owes WLR III

and its members, including Plaintiffs, fiduciary duties.

76. WL Ross, and its predecessors-in-interest, Ross Group and Wilbur Ross,

wrongfully caused and allowed management fees to be charged to WLR III, thereby

misappropriating assets of WLR III and depriving its members of substantial sums of money,

which is rightfully due to them. Such conduct constituted a breach of Defendants fiduciary

duties to the members of WLR III. Defendants further breached their fiduciary duties as set forth

above.

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77. Plaintiffs duly demanded that WL Ross account for improperly charging WLR III

management fees, but WL Ross has refused to do so.

78. The non-managing members accounts have not been judicially settled and there

has been no open repudiation by the managing member of its obligations. Furthermore, the

managing member and its predecessors-in-interest have fraudulently concealed the information

giving rise to this claim for many years.

79. Plaintiffs have no adequate remedy at law for Defendants wrongful conduct as

set forth above.

80. By reason of the foregoing, Plaintiffs are entitled to a full accounting of the affairs

of WLR III. Plaintiffs are also entitled to restitution, and disgorgement for any sum or balance

found to be due to WLR III following an accounting, and interest, costs, and disbursements,

including attorneys fees.

81. Plaintiffs further requests an order permanently restraining and enjoining WL

Ross, or any affiliates under its control, from causing or allowing management fees to be charged

to WLR III.

THIRD CAUSE OF ACTION

(Seeking an Accounting for WLR Recovery Associates IV, LLC

against WL Ross and Ross Group)

82. Plaintiffs repeats and reallege the allegations above as if fully set forth herein.

83. Plaintiffs and other members of WLR IV entrusted their capital to the managing

member of WLR IV, WL Ross, and its predecessor-in-interest.

84. As the managing member of WLR IV, a Delaware LLC, WL Ross owes WLR IV

and its members, including Plaintiffs, fiduciary duties.

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85. WL Ross, and its predecessor-in-interest, Ross Group, wrongfully caused and

allowed management fees to be charged to WLR IV, thereby misappropriating assets of WLR IV

and depriving its members of substantial sums of money, which is rightfully due to them. Such

conduct constituted a breach of WL Ross and Ross Groups fiduciary duties to the members of

WLR IV. Defendants further breached their fiduciary duties as set forth above.

86. Plaintiffs duly demanded that WL Ross account for improperly charging WLR IV

management fees, but WL Ross has refused to do so.

87. The non-managing members accounts have not been judicially settled and there

has been no open repudiation by the managing member of its obligations. Furthermore, the

managing member and its predecessor-in-interest have fraudulently concealed the information

giving rise to this claim for many years.

88. Plaintiffs have no adequate remedy at law for Defendants wrongful conduct as set

forth above.

89. By reason of the foregoing, Plaintiffs are entitled to a full accounting of the affairs

of WLR IV. Plaintiffs are also entitled to restitution, and disgorgement for any sum or balance

found to be due to WLR IV following an accounting, and interest, costs, and disbursements,

including attorneys fees.

90. Plaintiffs further requests an order permanently restraining and enjoining WL

Ross, or any affiliates under its control, from causing or allowing management fees to be charged

to WLR IV.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs pray that the Court:

a) Compel WL Ross & Co., LLC, with the assistance, if necessary, of any
predecessors-in-interest, to account to Plaintiffs for the affairs of WLR Recovery
Associates II, LLC, WLR Recovery Associates III, LLC, and WLR Recovery

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Associates IV, LLC, including but not limited to, all money and property received
and disbursed or assigned by those entities;

b) Order judgment, restitution, and disgorgement from Defendants for any sum or
balance found to be due to WLR Recovery Associates II, LLC, WLR Recovery
Associates III, LLC, and WLR Recovery Associates IV, LLC following an
accounting;

c) Permanently restrain and enjoin WL Ross & Co., LLC or any affiliate under its
control, from causing or allowing management fees to be charged to WLR
Recovery Associates II, LLC, WLR Recovery Associates III, LLC, and WLR
Recovery Associates IV, LLC;

d) Award Plaintiffs interest and costs and disbursements, including attorneys fees;
and

e) Grant such other relief as it deems necessary and proper.

Dated: New York, New York

November 15, 2017
Respectfully submitted,

COOLEY LLP

By: /s/Alan Levine

Alan Levine
David H. Kupfer

1114 Avenue of the Americas

New York, New York 10036
Phone: (212) 479-6000

Attorneys for Plaintiff David H. Storper

PRESS KORAL LLP

By: /s/Jason Koral

Jason Koral

825 Third Avenue, Second Floor

New York, New York 10022
Phone: (212) 520-8270

Attorneys for Plaintiffs David Wax and

Pamela K. Wilson

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