Federal judge denies Paulson’s petition to dismiss former partner’s lawsuit
A federal judge in Puerto Rico granted in part and denied in part the motion to dismiss by hedge fund owner John Paulson and others in a case brought by businessman Fahad Ghaffar, his former business partner.
Ghaffar alleged he invested about $17 million in a note issued by co-defendant Paulson PRV Holdings LLC, which was supposed to yield profits and interest, then convert into a 50% equity stake. He said Paulson did not comply with the terms of the agreement, misrepresented it, failed to pay for more than 16 months and never produced the note.
In a 32-page opinion, U.S. District Court for the District of Puerto Rico Judge Camille L. Vélez-Rivé stated that Paulson’s “interpretation of the facts in this case is simply untenable,” given how hard it is to believe that “an experienced businessman [Ghaffar] invested almost $17 million without any expectation as to the timing to receive the Note and the agreed upon benefits from that investment.”
Ghaffar filed charges of unjust enrichment and breach of contract against Paulson and his trust. In addition, he levied a securities fraud claim against all defendants and a “dolo”/fraud claim under the Puerto Rico Civil Code. The term “dolo” refers to intentional deception or fraud, specifically, a deliberate act or omission aiming to deceive or mislead another party, often resulting in harm or loss to that party.
“The only inference to be drawn from these facts at this stage is that the Paulson Defendants did not intend to comply with the original bargain from the beginning, and knowingly misrepresented the terms of the transaction to minimize Plaintiff’s [Ghaffar] equity interest and ultimately, not pay him pursuant to the terms of the agreement,” the court opinion and order reads.
The motion to dismiss the federal securities fraud, “‘dolo’/fraud/bad faith” and breach of contract claims was denied, while the unjust enrichment claim, the Puerto Rico securities fraud and the request to constructively trust the monies Ghaffar claims he is entitled to were dismissed.
The judge questioned Paulson’s intentions regarding his agreements with Ghaffar and denied his motion to dismiss the case against him.
Leo Aldridge, who joined Ghaffar’s legal team, stated the court’s refusal to dismiss the lawsuit against Paulson “shows that John Paulson cannot just land in Puerto Rico and do whatever he wants.”
“Likewise, this determination sends a clear message to Mr. Paulson that, despite the economic power he claims to have, he cannot disrespect the legal and business order in Puerto Rico or take justice into his own hands, as he tried to do in this case,” Aldridge said.
“We’re confident that this will be the first of several court decisions that put a stop to Mr. Paulson’s attempt to act as if, with his financial influence, he could override our laws and the rights of others,” he added.
Paulson’s attorneys, Terrence Oved and Darren Oved of Oved & Oved LLP, said, “This decision is a win for us. It’s significant that half of the claims against Paulson were decisively dismissed at this early stage even though the court was constrained to accept all plaintiff’s allegations as true. We look forward to the other half being dismissed in short order.”
The judge stayed the case until a motion filed by J.P. Morgan to dismiss the amended complaint and stay all proceedings is resolved.
