Thanks again to the 550 who attended Crane's Money Fund Symposium in Atlanta last week! Note that Crane Data subscribers and conference attendees may now access the recordings, Powerpoints and final binder via our "Content" page (at the bottom) and via the "Money Fund Symposium 2017 Download Center." Mark your calendars for next year's show in `Pittsburgh, June 25-27, 2018, and watch for coverage and comments in coming days and in the July Money Fund Intelligence. We also review recent news from Reich & Tang, which used to run money funds and now offers "innovative deposit and liquidity solutions to financial intermediaries." R&T recently announced a set of new hires, but it also just lost a lawsuit with Island Intellectual Property LLC and Double Rock Corporation (run by the Bent family, which formerly ran the Reserve Fund) involving payments over brokerage sweep patents.
A press release entitled, "Reich & Tang Overhauls DDM Trust Sales Team with 3 Industry Veterans," tells us, "Reich & Tang Deposit Networks, LLC ("Reich & Tang"), the leading provider of FDIC-insured solutions to banks, brokerages, and wealth managers, announced today that it has recently hired three industry veterans with an impending fourth to lead its sales efforts in the trust and wealth management space."
The new hires include: "David Carson, former National Sales Manager for liquidity products at JPMorgan Chase Asset Management and Morgan Stanley Investment Management, will lead Reich & Tang's efforts with the largest US banks (SIFIs) in the private wealth & trust space.... Stephen Brown, with over 30 years of experience in wealth management, including PNC Financial, Fifth Third Bank Investment Advisors, and ... Accutech Systems will serve as Director, Trust & Wealth Management servicing the Southeast, South Central and lower Midwest regions.... [and] Roger Maude."
President & CEO Michael Lydon says, "We are very excited about our new sales team focused on providing FDIC-insured turn-key solutions to trust and wealth managers. Reich & Tang has made significant investments in its Demand Deposit Marketplace program ("DDM") offering over the past 2 years resulting in up to $25 million in enhanced FDIC coverage, competitive returns, later cut-off times, customized bank monitoring for fiduciary clients, and seamless integration with most major trust accounting systems ... and we now have the right team in place to communicate the distinctive value DDM brings to investment professionals in meeting their customer needs for enhanced FDIC-insured solutions."
The release adds, "DDM is a daily, multi-million dollar FDIC sweep program that works similarly to a money market fund sweep, except investor cash is swept daily into FDIC insured accounts. "DDM has provided valuable balance sheet management services and high levels of FDIC insurance to scores of our community bank clients. Offering DDM to our trust & wealth management clients is a natural transition that provides another layer of service with multiple applications to both our bank clients and the clients they serve," concluded Lydon."
In related news, the Supreme Court of the State of New York recently issued a Decision and Order (Index No. 651702/2015) from Justice Shirley Weiner Kornreich involving "Plaintiffs: Island Intellectual Property LLC and Double Rock Corporation" and "Defendants: Reich & Tang Deposit Solutions, LLC, Reich & Tang Asset Management, LLC, and Michael Lydon."
The summary (which was forwarded to us and which we couldn't find online) says, "The Decision and Order at 2-3 & 20 of 241: denies the motion of the defendants (Reich & Tang and Lydon) to dismiss the fraud claim against them, denies the motion of the defendants (Reich & Tang and Lydon) to stay the case against them while related federal cases are pending in Delaware, grants the motion of the plaintiffs (Island and Double Rock) for partial summary judgment on liability on their claims for breach of contract and indemnification, denies the motion of the plaintiffs (Island and Double Rock) to compel the defendants to deposit royalty payments into the court, and grants the plaintiffs' motion to examine, through a third party accounting firm, Reich & Tang's books and records relating to its performance of its obligations."
It explains, "This case concerns the sale of plaintiffs' [cash management] business to defendants. A small percentage of the purchase price was paid, with the balance to be paid over time as an "earn-out" in the form of royalty payments under a patent license. It is undisputed that defendants refuse to pay plaintiffs the full amount of the earn-out. Their proffered excuse is the supposed invalidity of the business' patents. However, defendants do not dispute that, under the governing contracts discussed herein, payments may not be withheld unless and until all patents are declared invalid. That has not occurred."
The summary continues, "To date, it does not appear that any of the patents have been declared invalid. Nonetheless, relying on their belief that all of the [Island] patents will eventually be declared invalid under Alice Corp. Pty. Ltd. v CLS Bank lnt'l, 134 SCt 2347 (2014) [a U.S. Supreme Court decision that limits business method patents], defendants argue that their federal right under the Lear doctrine to withhold royalty payments for invalid patents preempts the contracts' provision to the contrary. See Lear v Adkins, 395 US 653 (1969) [a U.S. Supreme Court decision that allows a patent licensee to challenge the validity of a licensed patent]."
The document tells us, "Double Rock alleges that since: the value of its business far exceeded the [$15 million] upfront payment, Double Rock never would have agreed to sell for an upfront cash payment equal to only a fraction of that business' true value, had the purchaser, Reich & Tang, not also agreed to enter into an ancillary license agreement conveying payments equal to the balance of that business' value. In this case, Double Rock projected that the Amended License Agreement would yield approximately $92 million in royalty payments over the course of the license.... Suffice it to say that the amount of Royalty Payments [under the license agreement] is dependent on the success of the Business defendants purchased from plaintiffs. The Royalty Payments effectively function as an earn-out -- a typical feature of an asset purchase agreement where the purchase price correlates to the company's post-sale performance."
It adds, "[In the fraud claim against Reich & Tang and Lydon,] plaintiffs allege they were defrauded into selling their business, which managed billions of dollars, for a fraction of its value, based on a false promise to pay the royalties due under the [license agreement], which royalties were to reimburse plaintiffs for the real value of their business. According to plaintiffs, defendants never intended to make the royalty payments ... Ord. at 20 of 24 (granting the plaintiffs' motion for partial summary judgment on liability): To permit defendants [Reich & Tang] to keep the fruits of the Business without actually paying for it by virtue of a cynical invocation of Lear is surely contrary to both state and federal public policy."
The summary says, "Accordingly, partial summary judgment on liability is granted to plaintiffs on their first two causes of action [which claim that one Reich & Tang entity committed a breach of contract by withholding the royalty payments and that the other Reich & Tang entity is obligated to indemnify Double Rock for the breach] ... Ord. at 20-21 of 24 (denying the defendants' motion to dismiss the fraud claim): Turning now to plaintiffs' fraudulent inducement claim, the court finds it to be well-pleaded.... The allegations in the complaint [if proved will] permit a reasonable inference that defendants never intended to pay for the Business, but that their scheme was to acquire the Business for a small amount upfront and then withhold the rest of the royally payments based on the Lear doctrine. In other words, plaintiffs allege a material misrepresentation of fact made with scienter defendants then-present intention not to pay the bargained-for consideration."
Finally, the update comments, "Ord. at 23 of 24 (denying the motion to compel payment into the court and granting the motion for an accounting): Plaintiffs claim, and defendants do not meaningfully dispute, that defendants have taken steps to make themselves judgment proof. While this may or may not be true, it is settled law that the court may not order a defendant under CPLR 2701 to pay disputed funds "into court since the court may not direct such payment simply to provide security for satisfaction of a possible judgment.... Finally, plaintiffs seek an accounting under [the license agreement], which entitles Island to "the right ... to examine, through a third party accounting firm ... [Reich & Tang's] books of account and records relating to [Reich & Tang's] performance of its obligations under this Agreement." ... Plaintiffs' request for an accounting ... is granted."
