D.E. Shaw Ordered to Pay $52 Million in Defamation Case

A former Wall Street star who was ousted from a top hedge fund amid allegations of sexual harassment at the start of the #MeToo movement has won a record defamation award against his former firm, D.E. Shaw, and four of the firm’s senior executives, according to a filing by a panel of arbitrators on Thursday.

The panel of arbitrators, for the Financial Industry Regulatory Authority, awarded Daniel Michalow, a former D.E. Shaw partner, $52 million in the dispute, which has run nearly four years. In their decision, the arbitrators said they concluded that Mr. Michalow had not committed “sexual misconduct.”

FINRA, which settles employment disputes between brokerage firms and their employees. It is believed to be the largest award in a defamation case overseen by FINRA.

Unlike in a court case, a settlement in a FINRA arbitration case is binding and cannot be appealed.

“It is possible to defeat power, arrogance, and lies with persistence, humility, and truth,” Mr. Michalow, who has denied the sexual harassment allegations from the start, said in a statement. He added that the firm and its leaders championed themselves as “social activists and models of corporate governance at my expense.”

Tom Clare, Mr. Michalow’s lawyer, who has represented others accused of sexual harassment, said in a statement that the award “sends a strong message that D.E. Shaw’s conduct, which misused and weaponized an important cultural movement and put profits ahead of the truth, was both morally and legally wrong.”

A spokesman for D.E. Shaw said in a statement, “We were disappointed by the outcome of the arbitration, and we stand by the decision we made in 2018 to terminate Mr. Michalow’s employment with the firm.”

Mr. Michalow had been one of the D.E. Shaw’s star money managers before leaving in March 2018. The firm says Mr. Michalow was fired, but a source close to Mr. Michalow said the former money manager left voluntarily.

Shortly after Mr. Michalow’s exit, stories surfaced that he had been accused of sexual harassment at the firm. D.E. Shaw issued a statement at the time saying an internal investigation had found that Mr. Michalow had committed “gross violations of our standards and values.”

In September 2018, Mr. Michalow filed a defamation complaint against the firm, seeking $600 million in damages.

Mr. Michalow joined D.E. Shaw in 2004 after graduating from Harvard. He rose quickly, made partner in 2011 at age 29 and was reportedly paid $40 million in compensation that year. His last job at D.E. Shaw was co-manager of the firm’s discretionary macro strategy, which at the time had $6 billion in assets.

D.E. Shaw is one of highest-grossing, and secretive, hedge funds on Wall Street, managing more than $50 billion in assets. It is one of a group of hedge funds, which includes Renaissance Technologies, that pioneered using sophisticated quantitative strategies to manage giant investment portfolios. Before joining the Obama administration as a top economic adviser, Larry Summers worked part time at D.E. Shaw, earning $5.2 million a year. The firm has also garnered some fame for being the place where Jeff Bezos worked while he was hatching the idea for Amazon.

Along with the firm, four members of D.E. Shaw’s management committee were named jointly liable for the settlement, including Max Stone, Julius Gaudio, Eric Wepsic and Eddie Fishman. All four declined to comment for this article.

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