A outstanding Silicon Valley investor is in a bitter dispute along with his former employer, one of many world’s largest asset managers, accusing it of fraud and tried bribery.
In a lawsuit filed on Thursday in California, Josh Raffaelli, who till late final yr was a fund supervisor at Brookfield Asset Administration, mentioned the corporate had mistreated traders in his funds because it sought to make up for losses in different elements of its enterprise.
The 100-page criticism is notable partly as a result of Mr. Raffaelli has shut ties to Elon Musk, the world’s richest man. That relationship enabled Mr. Raffaelli’s funds to place cash into Mr. Musk’s non-public firms, a coveted alternative in Silicon Valley. However amongst Mr. Raffaelli’s allegations is that Brookfield improperly restricted the quantity that he may put money into a Musk firm on behalf of Brookfield’s purchasers.
In December, shortly after Mr. Raffaelli filed a whistle-blower criticism with the Securities and Alternate Fee, Brookfield fired him, in keeping with his lawsuit.
“Brookfield repeatedly betrayed the belief and finest pursuits of its traders, after which fired the worker who challenged its habits,” mentioned Mark Mermelstein, Mr. Raffaelli’s lawyer.
Brookfield manages greater than $1 trillion on behalf of pension plans, authorities funding funds and monetary establishments. Till January, its chairman was Mark Carney, Canada’s new prime minister.
“This go well with is completely with out benefit and these baseless claims run counter to how Brookfield manages its enterprise,” mentioned Kerrie McHugh, a spokeswoman for Brookfield. “We’ll vigorously defend in opposition to this meritless go well with, which was introduced by a disgruntled former worker.”
Mr. Raffaelli, 45, has had a protracted profession in Silicon Valley. In 2004, he turned an analyst at what was then known as Draper Fisher Jurvetson, a number one enterprise capital agency. On the time, Mr. Musk was on the ascent in Silicon Valley. He had not too long ago based the rocket firm SpaceX and made an early funding in Tesla, which might turn into the world’s most valuable automotive firm.
By 2009, Mr. Raffaelli was a board observer at each SpaceX and Tesla, in keeping with his LinkedIn profile. That entitled him to attend the businesses’ confidential board conferences. The proximity to Mr. Musk additionally gave Mr. Raffaelli the chance to speculate his purchasers’ cash within the billionaire’s non-public ventures. In Silicon Valley, that entry made Mr. Raffaelli a sizzling commodity in his personal proper.
In 2017 he joined Brookfield, figuring out of its San Francisco workplace. His job was to handle a handful of funds that may make investments purchasers’ cash in know-how firms. His base wage was $500,000, however his bosses advised him that if his funds carried out properly, his whole compensation may in the end be within the tens of tens of millions of {dollars}, in keeping with the lawsuit, filed on Thursday in Superior Courtroom in San Mateo, Calif.
Partially to draw outdoors traders, Brookfield agreed to place its personal cash in Mr. Raffaelli’s funds, which means the corporate’s monetary pursuits could be aligned with these of its purchasers. By 2024, his funds collectively managed greater than $1.75 billion, most of which got here from pension funds and different outdoors traders.
Tapping his contacts in Mr. Musk’s orbit, Mr. Raffaelli organized for his funds to put money into a number of of Mr. Musk’s non-public companies, together with SpaceX, the artificial-intelligence firm xAI and the tunnel-building enterprise often known as the Boring Firm, in keeping with Mr. Raffaelli’s lawsuit and other people conversant in the investments.
However Brookfield quickly encountered monetary issues, in keeping with the lawsuit. The Covid-19 pandemic had hammered the industrial actual property trade, through which Brookfield and its associates have been main traders. Brookfield Property Companions, the asset administration agency’s sister firm, lost about $2 billion in 2020.
That set the stage for Brookfield to start participating in fraud, Mr. Raffaelli mentioned within the lawsuit.
Quick on money, Brookfield in 2024 backtracked on a few of its pledges to place tons of of tens of millions of {dollars} into Mr. Raffaelli’s funds alongside outdoors traders, the lawsuit mentioned.
Across the similar time, Brookfield additionally vetoed a proposal from an unspecified “main international conglomerate” that needed to speculate as much as $100 million in considered one of Mr. Raffaelli’s funds, the lawsuit mentioned, describing that call as “indefensible.”
The mixed end result was that there was much less cash than anticipated for Mr. Raffaelli to speculate. That, in flip, restricted the potential upside for Brookfield’s outdoors purchasers, the lawsuit mentioned.
Already, Mr. Raffaelli mentioned, he had been pressured to sharply cut back — from $25 million to $5 million — the quantity that considered one of his funds deliberate to put money into Mr. Musk’s xAI. (The lawsuit didn’t determine xAI by identify, however folks conversant in the investments confirmed it.)
“That’s like strolling away from the prospect to purchase Fb or Apple inventory” at a cut price value, the lawsuit mentioned. “The markets anticipated this funding to go nowhere however up, and that’s precisely what has occurred.” The estimated worth of xAI has greater than tripled to $80 billion over the past year.
Final summer season, Brookfield knowledgeable Mr. Raffaelli that the agency was pondering of merging his funds into an organization known as Pinegrove Capital Companions, in keeping with his lawsuit.
Mr. Raffaelli began wanting into Pinegrove, an asset supervisor that was largely owned by Brookfield. He was alarmed by what he discovered. He mentioned that Pinegrove had exaggerated its capital ranges by greater than $100 million, making it seem financially stronger than it actually was. A whole lot of establishments — together with nonprofit organizations and pension funds for cops and firefighters — had been persuaded beneath false pretenses to entrust their cash to Pinegrove, in keeping with the lawsuit.
Final October, Mr. Raffaelli anonymously reported his findings to Brookfield by the corporate’s whistle-blower web site. A couple of weeks later, he mentioned, he submitted a criticism to the S.E.C.
Shortly after, Mr. Raffaelli’s boss, Anuj Ranjan, advised him that Brookfield’s chief govt had signed off on the choice to fold his funds into Pinegrove. Based on the lawsuit, Mr. Ranjan acknowledged to Mr. Raffaelli that the transfer was not good for his purchasers however was designed to prop up Pinegrove and lower your expenses for Brookfield. Mr. Raffaelli seen this as a violation of federal securities legal guidelines.
Mr. Ranjan didn’t reply to a request for remark.
The traders in Mr. Raffaelli’s funds wanted to approve the Pinegrove merger. Brookfield pushed Mr. Raffaelli to pitch them on it “as a result of his credibility would resonate higher with the traders that trusted him,” the lawsuit mentioned.
In trade for his assist, Mr. Raffaelli mentioned, Brookfield provided to pay him an quantity “means past” what he was presently owed. He mentioned the top of the corporate’s human assets division then despatched him a spreadsheet exhibiting he may ultimately be due as a lot as $46 million beneath his current compensation settlement.
Mr. Raffaelli mentioned he seen that as Brookfield providing him a bribe.
The next week, Mr. Raffaelli despatched the overall counsel at Brookfield Asset Administration the criticism he had beforehand despatched to the S.E.C.
“As uncomfortable as that is for me, I needed to share with you that I felt I had an obligation to blow the whistle on sure unlawful conduct,” he wrote, in keeping with the lawsuit.
9 days later, Mr. Raffaelli mentioned, he was fired.
