NEW YORK (Reuters) - Shareholders of the former GFI Group Inc may pursue a lawsuit accusing two top executives of fraudulently causing them to sell their stock prematurely as part of a plan to take the firm’s main brokerage unit private, a federal judge ruled on Tuesday.
U.S. District Judge William Pauley in Manhattan said former GFI Chairman Michael Gooch, former Chief Executive Colin Heffron and the company must face claims of improperly touting its sale to CME Group Inc while spurning a more shareholder-friendly bid from Howard Lutnick’s BGC Partners Inc (BGCP.O).
CME (CME.O) had agreed on July 30, 2014, to buy GFI for $4.55 per share, a 46 percent premium at the time, with the intent of keeping some units and spinning off the wholesale brokerage to a group led by GFI management.
But GFI became the target six weeks later of a $5.25-per-share hostile takeover from BGC, prompting a bidding war that ended with New York-based BGC agreeing in a tender offer to pay $6.10 per share.
GFI shareholders led by Benjamin Gross, who sought class-action status, claimed they missed the initial run-up by selling their shares during the six-week period, having been led to believe the original CME bid would not be topped.
They pointed to statements such as Gooch calling that bid “a singular and unique opportunity to return value.”
Pauley said such statements might convince reasonable investors that the transaction with Chicago-based CME would offer the best price.
“Gross adequately alleged that when management spoke, shareholders listened, choosing to sell their shares before competitors made superior offers,” Pauley wrote.
BGC and a lawyer for GFI Group did not immediately respond to requests for comment. Tariq Mundiya, a lawyer for Gooch and Heffron, declined to comment.
Lutnick’s firm, Cantor Fitzgerald LP, owns part of BGC. Gooch’s firm, Jersey Partners Inc, once owned more than 46 million GFI shares, regulatory filings show.
The case is Gross v GFI Group Inc et al, U.S. District Court, Southern District of New York, No. 14-09438.
Reporting by Jonathan Stempel in New York; Editing by Paul Simao