Battle of the bankers
Under different circumstances, Joe Perella might admire the entrepreneurial pluck of his erstwhile colleague Michael Kramer.
Mr. Perella, 74, is a legend on Wall Street for his role in transforming mergers and acquisitions from a banking backwater into a glamorous, big-money business. He is also known for making dramatic exits from two big banks — First Boston and Morgan Stanley — to set up boutique firms bearing his name.
Yet in February last year Mr. Perella apparently learned that Mr. Kramer, 47, was planning to leave his firm — and did not appreciate it.
Mr. Perella’s firm, Perella Weinberg Partners (PWP), claims in court documents that it discovered a plot by Mr. Kramer to quit and launch a rival investment bank with several colleagues. In an echo of Mr. Perella’s career, it would have been the second time Mr. Kramer had set out his own stall.
Mr. Kramer and three of his associates were fired and eventually sued by PWP, which said that they had breached their employment agreements. “Rather than building [their] own firm from the ground up or pay for a complete practice by acquiring another firm [they] decided to steal the practice group that PWP had spent millions of dollars and over seven years of effort to develop,” according to the PWP complaint filed in New York in October.
Mr. Kramer and his colleagues have fired back with a countersuit that denies any plan to leave. They also allege that PWP has defamed them and wrongfully seized $60 million of equity that the group had rightfully earned by “weaponizing” their employment contracts against them.
The Perella-Kramer fight is being watched closely by dealmakers on Wall Street. While disputes often arise among financiers seeking greener pastures, this is a rare instance of a disagreement spilling into public litigation.
A trial would put a spotlight not only on the internal workings of an esteemed investment bank but some bankers fear it could also open an unwelcome discussion on “restrictive covenants” — the industry’s bedrock employment contract provisions. These include “gardening leave,” a euphemism for allowing employees to be paid after they have left a job to prevent them from immediately starting in a new position with a rival. Non-solicitation and non-competition clauses, whose legality is controversial, could also come under scrutiny.
“Restrictive covenants really are a marvelous tool for thwarting competition,” says Richard Reice, a labor attorney at Hoguet Newman who is not involved in the case.
“The simple threat of litigation around these acts as an instrument to inflict pain on counter parties with fewer resources.”
Mr. Perella founded PWP in 2006, a year after he quit Morgan Stanley during the turmoil engulfing then chief executive Philip Purcell.
He hired a small group of Morgan Stanley colleagues and brought in Peter Weinberg, the former chief executive of Goldman Sachs International.
Mr. Weinberg’s grandfather, Sidney, is considered to be the architect of the modern Goldman Sachs and several members of the Weinberg family have held senior roles at the bank. PWP raised more than $1 billion from families including the Weinbergs, as well as from Middle Eastern funds Istithmar and Gulf Investment Corp.
Like many M&A boutiques, PWP coveted a financial restructuring practice to complement its core merger advisory business. After a boom in distressed debt investing in the 1990s, restructuring had become a lucrative business. The cadre of bankers and lawyers who focused on this niche were suddenly in demand and courted to join small banks such as Lazard and Evercore.
In the distressed debt sector, Mr. Kramer was known as a talented banker, albeit one who sometimes butted heads with colleagues. In 2007, PWP acquired Mr. Kramer’s restructuring firm, Kramer Capital Partners. Mr. Kramer was named founding head of PWP’s restructuring unit and was given a seat on the management committee.
Mr. Kramer started his career in 1989 at Houlihan Lokey in Los Angeles as a data entry worker but rose quickly and became a partner at 28.
“Mike started as an intern and then made it to partner faster than anyone in the history of Houlihan Lokey. He’s one of the hardest workers I’ve ever come across,” says a banker who worked closely with him.
At Houlihan, Mr. Kramer met Derron Slonecker, Joshua Scherer and Adam Verost, the three colleagues who were also fired by PWP. In 2001, Mr. Kramer and Mr. Verost left Houlihan for another boutique firm, Greenhill, where they founded a restructuring group. After clashing with Greenhill