This actually shows if here, traders don't understand how she created the carry over and management fee generator positions, there is no fucking way Mr. Layman of the jury will understand... "I voted for acquittal because she looks like such a nice lady and donated to charities."
LOL. I'm not the one that's misunderstanding this case. She realized her winners and kept open her losers. That's not hard to understand. But only looking at the $50 million of unrealized losses is half the picture. If she realized $50 million, net-net, P/L would be zero. But the fee structure is based on realized P/L. Therefore, if this case was about fund performance (and only fund performance), the P/L realized would be very relevant and would be mentioned in the claim. But alas, the case isn't about fund performance in isolation. It is about the over-charging of fees. All you have to do is read the VERY FIRST SENTENCE of the claim. So the claim is to recoup the fees if the fees were calculation to include the $50 million unrealized loss.
She had net losses and the claim is that her wacky accounting wasn't disclosed. Further she ran a quasi Ponzi scheme because if you redeemed you left your share of the unrealized losses behind. It's almost as if she was using elitetrader tasty trade accounting.
I can't believe we're even arguing over whether Karen *significantly* did anything wrong or whether it's protected by the contract. Look it's clearly not even remotely in the spirit of what people would sign up for as a client to the fund, it's clearly playing games to continue collecting fees and defer losses, and it's clearly a ponzi scheme by non fairly sharing all losses across all members of the fund.
Definitely agree that it's outside the spirit of the agreement. But is it counter to the words of the agreement itself and contractual obligations? That's what this case will determine.
They're not going to sit there and hyper-focus on the literal words of the agreement without regard for intent and completely ignore the obvious fraud going on. She violated good faith. From a word to word parsing the PPM already laid it out there that fees were per realized profits. It even distinctly lays out the situation which Karen took advantage of but minimizes the possibility of that situation occurring. The last part is totally misleading. It implies that "oh this won't happen because these are 30-90 day option positions" but completely leaves out the part where Karen sells 1000s of DITM calls expiring near the end of the month (to collect premium so as to realize a gain), buys 1000s of DITM calls on the same instrument expiring a week later, gets assigned futures on the first leg with a gain (hey look guys, a gain, time to take my fees) and then gets covered the following week with the whole thing basically being a no-op useless trade which only served to milk fees. Even the "type of trading" portion heavily implies that said trading is generally taking risk being short options and collecting premium (i.e. actual trading), not playing short term wash trade-like games to fuck over her clients. IMO it doesn't matter if the agreement laid out there the possibility for something questionable being done (section 39). It laid that it there in good faith, i.e. "this could happen but it's very unlikely to be abused" - of which Karen subsequently went and serially abused that very same scenario for months on end unbeknownst to investors who had no idea about this "strategy." The fact that it specifically calls out that situation and then implies it's use would be aberrative/short-lived when in reality it wasn't is pretty damning and indeed *not* in the best interest of the fund or it's clients. There's absolutely nothing different about this case vs many other prior cases of fund managers getting in too deep and having to play unethical or disallowed games to dig their way out of it. She knowingly deceived her investors and made the vast majority of her fees the past couple years via bullshit trades.
I agree with your premise. However, good faith is a very tough argument. Also, what takes precedence? Good faith and proper intent or the words of an agreement. I think it's akin to statutory interpretation. If the words provide clear boundaries, there is no reason to go into the intent of the clause. I also agree that para 39 is misleading but were her trades counter to the boundaries laid out by the plain and ordinary meaning of the words of the agreement? I agree 100% that if the claims are true, her actions were unethical. But we have to remember that the claim is argument intended to paint the picture from one end of the spectrum. I haven't read the defense's response.