D.E. Shaw Partner Fights Back After Firing

By Anonymous

A former partner at D.E. Shaw Group, one of the world’s largest hedge funds, has filed a complaint against the firm accusing it of defaming him in communicating his firing.

The complaint highlights a new challenge for employers, who in the age of #MeToo must decide what to say, if anything, upon terminating an employee alleged to have engaged in misconduct.

Last week, Daniel Michalow filed the complaint with the Financial Industry Regulatory Authority, or Finra, said his lawyer, John Singer. Mr. Michalow is seeking hundreds of millions of dollars in restitution and a “corrective statement” from the firm, Mr. Singer said. The filing isn’t public.

In March, the company gave Mr. Michalow the option to retire, which he chose to do, people close to Mr. Michalow and a person close to D.E. Shaw said. D.E. Shaw later said Mr. Michalow was fired after an internal investigation. Finra arbitrates complaints about the business activities of brokerage firms.

“It used to be that everything was handled under the rug. It wasn’t an issue,” said Minna Kotkin, professor of law and director of the Brooklyn Law School Employment Law Clinic, who isn’t involved in the dispute. “Now that the press is involved, it’s harder to keep these things confidential, which creates more risks for both sides, for both employers and employees.”

Ms. Kotkin and other lawyers say the best advice is to say nothing. Any commentary about a departure puts a company at risk that the terminated employee might claim defamation. But silence can be difficult as some companies want to show they are at the forefront of discrimination issues, or may feel pressure to explain their decision to terminate someone.

“To the extent you’re going to say something that is disparaging, there’s not much you can say that will protect you from being sued,” said Michael Willemin, an attorney at Wigdor LLP, which has represented employees filing discrimination cases but isn’t a party to the D.E. Shaw dispute. “To the extent that you are going to say anything, the less explicit it is, the less disparaging it is, the less it is an accusation of misconduct or wrongdoing, the less likely it is to give rise to any legal liability.”

Mr. Michalow, 36, joined D.E. Shaw after graduating from Harvard University in 2004, and rose quickly at the firm. At 25, he was running the firm’s structured-credit unit, which made around $500 million over the next few years, the people close to Mr. Michalow said. He made partner at 29 at the end of 2011, and was paid nearly $40 million the next year, the people close to him confirmed.

Most recently, Mr. Michalow co-ran D.E. Shaw’s $6 billion discretionary macro strategy, which looks for market inefficiencies across asset classes—a hefty chunk of the firm’s $51 billion in assets.

D.E. Shaw initially said Mr. Michalow retired in March. In May, after being contacted by Business Insider about an impending article, Mr. Michalow asked D.E. Shaw to issue a statement clarifying that he wasn’t found to have committed sexual misconduct or harassment, according to the people close to him.

In response, D.E. Shaw issued a statement that Mr. Michalow was fired for “gross violations of our standards and values.” It described his conduct as “abusive and offensive.” The firm wasn’t willing to say the complaints raised no concerns of harassment or discrimination, the person close to D.E. Shaw said.

“All I asked of the Executive Committee, and even David Shaw, was to be ethical and tell the truth. Instead, they maliciously followed through on their threats to defame me and destroy my reputation,” Mr. Michalow said in a statement to The Wall Street Journal. Mr. Shaw is the billionaire founder of the firm.

“Mr. Michalow’s account is inaccurate and his claims have no merit,” D.E. Shaw’s spokesman said. “We stand by our decision to part ways with him and will defend ourselves in the appropriate forum.”

Mr. Michalow has hired John Singer, a well-known lawyer who represents several men taken down in #MeToo, and Tom Clare of Clare Locke.

D.E. Shaw’s investigation into Mr. Michalow began early this year after Mr. Michalow told a colleague that he wanted to hire an assistant he could “call sugar tits,” the people close to D.E. Shaw and Mr. Michalow said. After another employee complained, the firm started an investigation into Mr. Michalow.

That investigation found four other questionable incidents, including a time he had changed shirts in a hallway and told a colleague he needed a hug after a bad day, the people close to Mr. Michalow said. D.E. Shaw disputes that account.

Following his departure, Mr. Michalow rejected more than $10 million from D.E. Shaw. The money would have required Mr. Michalow to forgo his right to legal action.

“Under his longstanding employment agreement, Mr. Michalow would have been entitled to receive previously earned compensation had he signed a standard separation and release agreement,” D.E. Shaw’s spokesman said. “He failed to do so and forfeited any right to that compensation.”

Mr. Clare, one of Mr. Michalow’s lawyers, disputes D.E. Shaw’s account.

Mr. Michalow contends other staffers exhibited behavior worse than his own. In May, he published on social media a five-page letter detailing his claims to Mr. Shaw, where he said some executives dated junior reports and visited strip clubs.

D.E. Shaw declined to comment on those allegations.