In re BGC Partners, Inc. Derivative Litigation

Court: Delaware Court of Chancery
Case Number: C.A. No. 2018-0722-AGB
Case Leaders: Jeroen van Kwawegen, Christopher J. Orrico
Case Team: Andrew Blumberg, Rebecca L. Reyhani

This stockholder derivative action challenges related-party transactions proposed and structured by BGC Partners, Inc’s (“BGC” or the “Company”) controlling stockholders, alleging that they intended to extract nearly $1 billion in cash from BGC while saddling the Company with massive debt to third-party lenders.

On February 12, 2019, through their counsel, BLB&G and Grant & Eisenhofer, P.A., Plaintiffs Roofers Local 149 Pension Fund and Northern California Pipe Trades Trust Funds filed a Verified Amended Stockholder Derivative Complaint (the “Complaint”), derivatively on behalf of BGC against (i) members of BGC’s board of directors; (ii) BGC’s controlling stockholders, Howard Lutnick (“Lutnick”), Cantor Fitzgerald, L.P. (‘Cantor”), and CF Group Management, Inc.; and (iii) BGC’s CEO Lutnick (in his capacity as an officer), for breaches of fiduciary duty.

The Complaint challenges BGC’s 2017 acquisition of Berkeley Point Financial LLC (“Berkeley Point”) and alleges that the unfair deal was forced on BGC investors to benefit Lutnick and approved through an unfair process by non-independent directors and resulted in unfair payments by BGC to Cantor affiliates. As a result, Lutnick, who held a substantially larger economic stake in Cantor Fitzgerald than BGC, benefitted personally from BGC’s overpayment for Berkeley Point, at the expense of the Company and its public stockholders.

Specifically, in the challenged transaction, Lutnick and Cantor caused BGC to take on $975 million in debt to: (i) purchase Berkeley Point Financial LLC (“Berkeley Point”) from Cantor Commercial Real Estate Company, L.P. (“CCRE”), a Cantor affiliate, for the overinflated price of $875 million (the “Berkeley Point Acquisition”) and (ii) commit to invest $100 million for a 27% interest in CCRE’s remaining commercial mortgage-backed securities business (the “Joint Venture” and, together with the Berkeley Point Acquisition, the “Related Party Transaction”). Since the Related Party Transaction presented an inherent conflict of interest for Lutnick and Cantor, BGC created a special committee consisting of BGC’s remaining four directors (the “Special Committee”). However, the “independent” members of the Special Committee were anything but. Each member of the Special Committee was dominated and controlled by Lutnick and Cantor as exhibited by: (i) their deep, extensive relationships with Lutnick; (ii) the material income derived from serving on various Lutnick/Cantor related boards of directors; and (iii) their knowing abdication of their fiduciary duties in connection with the Related Party Transaction. As a result, Lutnick and Cantor were able to pocket millions of dollars through the challenged transactions at the expense of the Company and its stockholders.

Defendants filed motions to dismiss the Complaint and, on June 6, 2019, the Delaware Court of Chancery heard arguments on Defendants’ motions. On September 30, 2019, the Court denied Defendants’ motions. (Click on "Case Documents" at left to view the Court's Opinion.) We have completed fact and expert discovery. On February 10, 2021, Defendants filed motions for summary judgment and on March 29, 2021, we opposed the motions. Oral argument on Defendants’ motions for summary judgment was heard on June 22, 2021. On September 20, 2021, the Court granted in part and denied in part Defendants’ motions for summary judgment. A five day trial was held from October 11-15. The Court heard post-trial argument on March 2, 2022 and requested supplemental submissions on April 14, 2022. The supplemental submissions were filed on May 13, 2022.

On August 19, 2022, the Court issued a Memorandum Opinion ruling in favor of Defendants. On September 27, 2022, the Court entered an Order and Final Judgment. That same day, Plaintiffs noticed an appeal of the Court’s
(i) September 20, 2021 opinion granting in part and denying in part Defendants’ motions for summary judgment and (ii) August 19, 2022 post-trial opinion ruling in favor of Defendants.