Securities Law & Corporate Counsel Blog

Episode 10 leads up to a tough scenario for Axe as Principal of Axe Capital in the wake of his current personal and professional dramas. Spoilers Ahead

In the last episode, we found out that 3 Axe Capital employees left Axe Capital and took files with them. Wags tells Axe that the new firm, Ionosphere, has $200 million in AUM, $40 million of which is their own capital with the additional money coming from solicited clients they poached from Axe Capital. Axe's lawyer advises him that all 3 former employees signed non-competes so technically Axe could take immediate legal action to prevent them from opening their doors because of the former employee's direct use of proprietary client information taken from Axe. Nevertheless, the former Axe employees could counter and claim that Axe Capital is not the same place they signed on to so their deals should be void. Axe decides not to take action to avoid additional bad press. While Axe tries to convince the solicited clients not to move their capital from Axe Capital to Ionosphere, his efforts are fruitless. Meanwhile, Dollar Bill is acquitted and returns to Axe Capital to a hero's welcome from everyone except Axe. Axe stages a fake fight with Dollar Bill and convinces him to become a mole at Ionosphere. We later see Dollar Bill deliver a bad insider trade tip to the Ionosphere team which leads them to lose 28% of their fund. At this point Axe walks in and offers Ionosphere $250 million to save their fund with the following non-negotiable terms:

• Enter into a non-compete agreement with Axe Capital
• Sign non-solicitation agreements with Axe Capital
• Enter into a revenue share agreement with Axe Capital
• $250 million to be treated as "seed" money, which will be charged 40% interest (instead of the current rate of 20-25%
• Provide total transparency, including daily delivery of trade files to Axe Capital
• Limit how much outside capital can be raised
• At no time can Ionosphere manage more than $999 million
• No buyout of the revenue share agreement and no lockout of Axe Capital's investment
• Axe Capital can pull the plug at anytime

The Ionosphere team takes the deal immediately. Breakaways are a common part of the financial industry. Commonly teams leave to go to another firm; but there are risks involved in the transition process. Breaking away is a tedious process including evaluation of current employment agreements, regulatory considerations, selecting a business structure, completion of required forms for your association model, preparation of written policies and procedures and much more. Jacko Law Group has extensive experience helping with breakaways. For more information contact Jacko Law Group at [email protected] .