What You Need to Know
- A couple charged that false promises were made to induce them to contribute stock to a donor-advised fund.
- The plaintiffs maintained that Fidelity Charitable had assured them that it would liquidate shares gradually and use state-of-the-art means to do so.
- The judge found no contemporaneous written record to support that such assurances had been given.
A federal district court judge in Northern California has ruled in favor of Fidelity Charitable in a negligence lawsuit brought by hedge fund managers Malcolm and Emily Fairbairn, Courthouse News Service reported Friday.
The Fairbairns filed the lawsuit in 2018, accusing Fidelity Charitable of mishandling a contribution to their donor-advised fund account of $100 million of stock in late 2017.
Their donation represented about 10% of their ownership of a publicly traded company called Energous, a wireless charging technology venture, in which they were angel investors. After the company’s value soared by 39% in December 2017, Fidelity Charitable sold off the stock within three days.
It did this, the Fairbairns charged, without their authorization and with unsophisticated trading strategies that caused the stock’s value to plunge. As a result, they had less money in their DAF and a smaller tax deduction.
The Fairbairns maintained that Fidelity Charitable had assured them that it would liquidate shares gradually and would use state-of-the-art means to do so. It also agreed on price limits to ensure that the stock retained its value, they said.
Fidelity Charitable made these promises, they said, to induce them to transfer the stock.
In their lawsuit, the couple alleged that Justin Kunz, a Fidelity Charitable employee, had assured them that the fund would not trade more than 10% of the daily trading volume of their donated stock, would use sophisticated methods to liquidate large blocks of stock in a way that would not start a selling panic, would allow the couple to advise on a price limit, and that the fund would not sell any of the donated stock until the following year.
Fidelity Charitable denied that it made such agreements. It said the Fairbairns were aware of its standard policy that it can sell securities as soon as they are received.
U.S. Magistrate Judge Jacqueline Scott Corley wrote in her ruling that the Fairbairns failed to prove that either those promises were made or that the fund had acted negligently.