Jury Says Forstmann Breached Its Contract –

Forstmann Little & Co. was found “liable” of breaching its contract with the State of Connecticut, and for having breached its fiduciary duty. The verdict came on July 1, less than two days after a Vernon, Conn., jury had begun deliberations on the case, and was notable for not rewarding damages to Connecticut. The state had been seeking in excess of $100 million.

“The verdicts are bizarre in some respects because it’s hard to imagine that they could characterize Forstmann Little in a worse light as a professional manager of assets,” says John MacMurray, a private equity attorney with Ropes & Gray LLP. “The jury found that Forstmann Little had committed malpractice in terms of being an asset manager, but the actual outcome is that Forstmann Little won the case because there were no monetary damages.”

The case, filed in February 2002, accused New York-based Forstmann Little of breaching its fiduciary responsibility to Connecticut, which had invested $198 million in a pair of Forstmann Little funds. Connecticut also alleged contract law violations, securities law violations and that Forstmann Little had engaged in bad faith practices and unfair dealing.

Opening arguments didn’t begin until the beginning of June, by which point Superior Court Judge Samuel Sferrazza already had thrown out the charges of securities law violations. Two weeks later, he said that the prosecution had not presented sufficient evidence to sustain the bad faith and unfair dealing charges. The final jury verdict found Forstmann Little liable for two counts of contract breach and one count of breach of fiduciary duty. It did not give an explanation for the lack of damages.

Ted Forstmann, senior founding partner of Forstmann Little, issued a statement that declared the jury verdict a “complete victory” for his firm.

Lawyers following the case, however, point out that Forstmann Little now has a black mark on its once-sterling reputation, and that the firm incurred sizable defense costs.

– Dan Primack

CalSTRS Goes Global

The California State Teachers’ Retirement System (CalSTRS) is going international. Up to one-fourth of the pension fund’s private equity portfolio will be invested internationally, according to the new alternative investment plan adopted by the $113 billion retirement system in June.

Almost 18% of the retirement system’s $5.5 billion private equity portfolio sits in international private equity funds. Its exposure, however, is limited to funds in the United States, Canada, the United Kingdom and Western Europe. Consultant McKinsey & Co. recommended that CalSTRS add developed and undeveloped nations in the Middle East, Far East, Latin America and Eastern Europe to its program.

– Carolina Braunschweig