VSS sues ex-staffers who left for Riverside to start credit arm

The suit, filed in the Supreme Court of the state of New York in late November, is a response of sorts to a wrongful termination suit filed in federal court in August by George L. Cole, a former fund manager at the New York-based firm. In that case, Cole sought at least $650,000, the amount he calculated he would be entitled to under Veronis Suhler Stevenson’s severance policy.

Cole, along with Hal Greenberg, Michael Kessler, Jeffrey Gordon and Jay Reynolds, all members of the VSS structured capital team, went on to join The Riverside Company in September to establish a credit strategies group for that Cleveland-based firm.

A spokesman for Riverside declined comment, as did Cole’s attorney, John K. Crossman of the law firm Zukerman Gore Brandeis & Crossman LLP, and VSS attorney Harry W. Lipman of the firm Rottenberg Lipman Rich. Veronis Suhler Stevenson did not respond by deadline to a request for comment. The individual defendants could not be located to request comment.

Riverside was not named in the Veronis Suhler Stevenson complaint, nor were Gordon or Reynolds. But Veronis Suhler Stevenson accused Cole, Greenberg and Kessler of violating their employment agreements and firm policy by seeking to lift out the structured investing group from the firm while they were still employed there. The firm said they “recognized the improper nature of their conduct and went to considerable lengths to conceal it” by using personal email addresses and text messages rather than work emails.

After they left, the firm determined that they had committed “willful malfeasance” and struck their “carry units” to zero value. The firm demanded restitution of carry, compensation and other benefits.

Veronis Suhler Stevenson also said the three men improperly took proprietary documents and improperly disclosed the firm’s confidential information to third parties, including the firms Advent Capital Management LLC and Forum Capital Partners LLC, in addition to Riverside and others, “in an attempt to appropriate VSS’s investor relationships for their own benefit.” Neither Advent Capital nor Forum Capital responded by deadline to requests for comment.

Veronis Suhler Stevenson also sought to deny the defendants any “attribution” for the success of the firm’s structured capital funds, VSS Mezzanine LP and VSS Structured Capital II LP, saying in the complaint that the men “rarely initiated investment transactions and all investment decisions and decisions relating to portfolio companies were made by the VSS investment committee.”

The firm said the three defendants violated a confidentiality policy that each had signed twice, in 2012 and 2013. (In his wrongful termination suit, Cole said he was dismissed this year after he refused to sign an agreement, presented for the first time, that he believed changed his terms of employment.)

One result was to disrupt the launch of a follow-up fund, VSS Structured Capital III LP, which had been planned for 2013. Veronis Suhler Stevenson accused the defendants of delaying their work on the new fund because they were focused on developing a competing fund. Fund III apparently still has not launched.