Facts

Defendant Bert Dohmen writes investment newsletters and appears on television as a financial guru. In 2011, he started a hedge fund. He approached a friend, plaintiff Albert Goodman, and asked him to invest.

PLAINTIFF'S CONTENTIONS: Plaintiff contended defendant told him that the fund would be aiming for long-term growth and that other people were in the process of investing. Goodman invested $1 million in late 2011 in 2 tranches. No one else invested in the fund and by mid-2014, Goodman's $1 million investment was worth less than $100,000. Goodman sued for fraud, breach of fiduciary duties, and other torts, seeking $1 million in damages. Dohmen had made little effort to attract other investors because the fund lost money from the outset. Goodman discovered in May 2012 that he was the only outside investor, by which time his investment had fallen in value by around 30 percent.

Dohmen misled Goodman into investing in the fund by misrepresenting the existence of other investors and the long-term approach of the fund, which Goodman understood to mean low risk. Dohmen used Goodman's money to embark on a risky investment strategy, which was unsuccessful from the outset. Dohmen then used riskier and riskier trading strategies in the hope of turning a profit, which was the only hope he had of attracting other investors.

DEFENDANT'S CONTENTIONS: Dohmen disclosed to Goodman from the outset (In the PPM and otherwise) that his investment choices could include almost any manner of investment strategy. While Goodman claimed in his suit that he was unaware there could be short-term trades, after he invested, he told Dohmen that he liked the short-term trading approach that Dohmen advocated in one of his newsletters. Moreover, Dohmen did tell Goodman in some emails that short term trades were an increasing part of his investment approach after the initial losses. In fact, each time Goodman complained about the fund's performance, Dohmen offered him the chance to pull his investment out of the fund, but Goodman declined each time. Dohmen also contended that Goodman did not rely on any of his vaguely-worded emails about whether others were investing in the fund, and that regardless, those statements had no effect on the fund's performance.

Result

Plaintiff was awarded damages of $167,977 for breach of fiduciary duties. The court found that Dohmen breached his fiduciary duties to Goodman by falsely telling him that other people were in the process of investing, and that this misstatement caused Goodman to invest his second tranche of $500,000. The court found that Goodman had not proven fraud on these facts under Delaware law because Dohmen's misrepresentation about there being other investors did not cause the fund to lose money. The court rejected all of plaintiff's fraud causes of action. The court awarded Goodman damages based on the decrease in value of the second tranche between December 2011 and May 2012. He also awarded damages because Goodman, as the sole outside investor, had to bear most of the fund's expenses himself, rather than sharing them with other investors.

Other Information

Delaware law applied, based on a choice of law term in the PPM. According to defense, the court rejected all of plaintiff's claims that damages should be more than $1 million.

Length

five days