The Wall Street Journal currently is involved in legal proceedings arising from the newspaper aiding a source, a former Highland employee, in violating a court order. The former employee since has been sentenced to jail for violating this court order. Is it appropriate for the Journal to publish a sensationalized article against Highland under such circumstances?
The following is Highland Capital Management’s response to that article, which ran online on November 26, 2017 and in print on November 27, 2017. The below follows a letter sent by Highland co-founder and president James Dondero to the editor in chief of the Wall Street Journal (WSJ), which can be found here: Highland Capital Management Letter to the Wall Street Journal, November 28, 2017
When a reporter with an agenda mischaracterizes the facts, it falls on the victim to set the record straight. This is just such a situation. Matthieu Wirz’s article about Highland was long on salacious language, but short on context and facts. Mr. Wirz’s record makes his agenda clear. Since June 2016, he has written 15 stories for which he was the sole reporter, four of which are negative stories about Highland. He has not written any negative pieces focused on any other investment managers. Despite our repeated efforts to provide Mr. Wirz with the actual facts, Mr. Wirz refuses to present an accurate picture of Highland. Interestingly he is the only WSJ author to write a negative article about Highland in the past ten years. The facts below are those that Mr. Wirz did not deem relevant in his latest printed attack on Highland’s business.
In stark contrast to Mr. Wirz’s current journalistic agenda, his earlier writings from 2004 to 2011 about our firm lauded Highland’s “legal judo” for the benefit of its investors. His tone radically changed in 2012 once he started using Patrick Daugherty, a former Highland portfolio manager, as a primary information source. Mr. Daugherty resigned and then embarked on a defamatory crusade when Highland rejected his exorbitant compensation demands in February 2012. In March 2012, Mr. Wirz published his first negative article about Highland on an unrelated dispute. The article quotes “people close to the matter,” which the facts indicate was none other than Mr. Daugherty.
Two months later, when Mr. Daugherty’s dispute with Highland went to court, Mr. Wirz’s first article on the dispute further relied on Mr. Daugherty’s skewed portrayal of Highland. In the resulting 2014 trial, the jury cleared Highland of Mr. Daugherty’s allegations of mismanagement during the financial crisis, while Mr. Daugherty himself was found to be in breach of his fiduciary duties and ordered to pay Highland $3.2 million dollars. Most notably, the court put in place an injunction ordering Mr. Daugherty to cease disclosing Highland’s confidential information. Despite these findings, Mr. Wirz continued to use Mr. Daugherty as a primary source in biased reporting about Highland’s business, including with respect to matters wholly unrelated to Mr. Daugherty.
Astoundingly, Mr. Daugherty’s misconduct was not deterred by the injunction against him. As recently as 2016, the court found Mr. Daugherty lied under oath about recent violations of the injunction. After seven different court hearings in which the judge repeatedly warned Mr. Daugherty of the consequences of his violations, the court ultimately found Mr. Daugherty in contempt of court and sentenced him to 38 days in jail.
In a separate set of violations still under investigation, Mr. Daugherty leaked confidential information to the WSJ. On Friday August 12, 2016, Highland provided the WSJ with a copy of the injunction order prohibiting Mr. Daugherty from leaking Highland’s confidential information. The following Monday, Mr. Wirz again was on the phone with Mr. Daugherty discussing Highland’s confidential information. The court ordered Mr. Wirz and the WSJ to provide information about these conversations to Highland, which the WSJ is appealing. Despite Mr. Daugherty having been found to have lied under oath about Highland, Mr. Wirz confirmed in writing as recently as yesterday that he continues to use Mr. Daugherty as a source in his Highland-related coverage, including the misleading November 27, 2017 WSJ article.
The November 27, 2017 article about Highland’s employment dispute with another former employee, Josh Terry, is a continuation of his agenda-based and misleading journalism about Highland in the wake of the Mr. Daugherty dispute. Mr. Wirz once again failed to mention numerous salient facts, including that Mr. Terry’s false and sensationalized allegations against Highland were simply part of Mr. Terry’s extortion scheme against Highland.
In late 2014, Mr. Terry tried to renegotiate his partnership agreement with Highland’s principals to increase his interest in Highland affiliate Acis Capital Management, L.P. to a permanent 25 percent equity position. Though he declared that he loved working at Highland and wanted to spend the rest of his career here, he threatened to leave if his increased equity demands were not met. Highland explained that Mr. Terry’s performance and track record did not warrant such a restructuring of his agreement. After Highland denied his requests, Mr. Terry commenced secretly recording conversations to extort in settlement the value he failed to achieve in negotiations.
Mr. Terry secretly recorded conversations at Highland for over 18 months. He recorded calls with investors, counterparties, attorneys, and employees without Highland’s knowledge or consent. He recorded conversations with persons in various states and countries, in violation of federal and state wiretapping laws. He recorded, and later disclosed, Highland’s privileged conversations with its attorneys on various transactions. During these recorded conversations, Mr. Terry repeatedly baited co-workers to elicit inflammatory or out-of-context statements so he could attempt to manufacture a whistleblower claim. After his termination on June 9, 2016, Mr. Terry selectively retained recordings with inflammatory statements, but deleted recordings that exonerated Highland or tended to disprove Mr. Terry’s narrative of the facts. Prior to filing his claims against Highland, Mr. Terry threatened to make wild allegations to the SEC unless Highland paid him over $10 million in ransom. It is telling that despite over 18 months of recordings, Mr. Terry did not make any allegations of impropriety by Highland until after he was terminated for cause.
Mr. Terry was terminated for improper sexual relations, poor performance and numerous compliance violations, among other things. Mr. Wirz’s recent article states “Highland… used pretexts and false allegations of a sexual relationship with a coworker to fire [Mr. Terry].” Terry’s own pleadings state “Terry did not have a sexual relationship with any of his subordinates.” While Mr. Wirz would leave his readers believing Highland maliciously made up Mr. Terry’s affairs as some form of retribution, Mr. Terry admitted, both at deposition and in the arbitration, that “I had an affair with Ms. [omitted] from mid-2103 to the end of 2014.” The affair severely impacted the junior female employee’s career and was indicative of a pattern of behavior that resulted in his ultimate termination. Once Highland proved that Mr. Terry lied in his pleadings about one of his affairs, we did not want to further disrupt the lives of its former employees nor did we need to prove anything else. While Highland continues to assert that Mr. Terry had at least three intra-office affairs, the WSJ’s observation that Highland did not present enough evidence of additional affairs is not relevant in light of Mr. Terry’s admission. Additionally, since Mr. Terry’s departure, several additional women have come forward with allegations of sexual harassment and unwanted advances by Mr. Terry. Finally, numerous senior persons at Highland recommended that he be fired for both his sexual misconduct and numerous compliance violations. This was not a personal battle between Mr. Terry and Mr. Dondero. Highland was compelled to terminate Mr. Terry for his overall pattern of misconduct.
Highland made Mr. Wirz aware of this background. We also expressed concern to both Mr. Wirz and his editor on numerous occasions about Mr. Wirz’s characterization of these inappropriate sexual relationships. Rather than seeking to understand the truth in our allegations of Mr. Terry’s inappropriate sexual relationships, Mr. Wirz chose to write a story that misleads readers with the implication that Highland’s very real accusations were baseless.
Mr. Wirz’s article omits or twists key facts about the arbitration proceeding. Mr. Terry demanded for over $210 million in the arbitration. He was awarded less than four percent of that amount. Additionally, Mr. Terry lied under oath at the arbitration, including about his contacts with Mr. Daugherty after his departure from Highland.
Furthermore, though Mr. Terry testified that Highland relied on him as the primary driver of its CLO business, Mr. Terry failed to raise a single dollar of third-party CLO equity for his Acis business, which was his key job responsibility. Mr. Terry’s self-aggrandizing testimony to the contrary, Highland helped to create the CLO industry years before Mr. Terry arrived and he merely filled a senior vacancy on the structured products team. Notably, Highland has continued to grow its CLO business in his absence.
Mr. Wirz’s article gratuitously raises unrelated legal disputes from Highland’s past, but fails to mention those related to the subject of the article. In particular, Mr. Wirz did not report that Rogge Dunn, Mr. Terry’s counsel, represented a group of clients opposed to Highland that were sanctioned, billed for costs, and admonished by the court in a prior matter. In that proceeding, Mr. Dunn’s former client, a 62-year old CEO, served six months in jail for destroying evidence and then repeatedly lying about it under oath. The defendants, including Mr. Dunn’s clients, were fined over $750,000 for destruction of evidence while Mr. Dunn’s firm was representing them. This was the largest sanctions award in Dallas County history. As a result, the defendants settled the lawsuit, paying to a Highland affiliate the largest commercial case settlement in Texas that year. Mr. Dunn, now seeking retribution against Highland, worked with Mr. Terry months before Mr. Terry was terminated, including consulting with Mr. Terry on how to make his secret recordings.
Highland’s ongoing compensation dispute with Mr. Terry gave Mr. Wirz another opportunity to twist the facts of a Highland lawsuit. The article misleads its readers in several ways. First, Mr. Wirz wrote that Highland made “transfers” between investment vehicles, when he knows that did not occur. Rather, Mr. Wirz is aware that the transaction involved a mere six-month extension of a previously existing credit facility. No Highland investors ever extended additional loans or “transferred” anything. Mr. Wirz was told this before he published, but only said that he “would take everything under consideration.”
Mr. Wirz intentionally drafted the article to imply, if not state, that Highland breached a duty to its investors. Mr. Wirz suggested to Highland that he was going to draw just such a conclusion, only backing down after Highland engaged in numerous conversations with his editor. Prior to the article’s publication, Highland provided Mr. Wirz with the written testimony of Mr. Terry’s own expert showing Highland neither breached nor ever instructed Mr. Terry to breach any duty to Highland’s investors. Mr. Wirz did not find this newsworthy. He also did not find newsworthy that Mr. Terry lost his wrongful termination claim, meaning that the arbitrators found that Highland did not ask Mr. Terry to breach any duties in relation to any transaction. While Mr. Wirz alleges that Highland engaged in improper transfers, Mr. Wirz omitted that the arbitration panel dismissed the fraudulent transfer claims against Highland. Finally, though Mr. Wirz mentions that Mr. Daugherty had alleged improper transfers in his earlier litigation with Highland, Mr. Wirz’s article fails to mention that the jury found these allegations were baseless. Mr. Wirz intentionally reported incomplete facts, leading his readers to false conclusions.
Mr. Wirz, as part of his agenda, also mischaracterized several unrelated disputes. For example, Mr. Wirz focused on a prior arbitration regarding the Highland Credit Strategies Fund. The article focused on a small part of numerous issues raised by the wind down of this financial crisis-era hedge fund. Mr. Wirz refused to mention that Highland voluntarily bought out the remaining portfolio assets at the request and for the benefit of the investors. As part of the transaction, the lawsuit was resolved and the investors agreed to vacate and nullify the award against Highland. One investor requested WSJ retract an inaccurate, negative statement that was attributed to the investor in the Mr. Wirz’s 2016 article about the dispute. The Credit Strategies Fund’s final resolution not only maximized returns to investors, but also generated $10 million in value to Highland. However, these additional facts did not fit Mr. Wirz’s narrative.
Mr. Wirz’s Highland narrative does not have much room for either facts or context. Since Highland’s founding in 1993, approximately 25 partners have come and gone from the firm. While Mr. Wirz paints Highland as constantly litigating against its former partners, Highland only has had two such disputes in 24 years: Mr. Daugherty and Mr. Terry. In Mr. Daugherty’s case, a jury found him to have breached his fiduciary duty and a judge held him in contempt of court and sentenced him to jail. Mr. Daugherty also paid a $3.2 million judgment to Highland, and continues to owe additional amounts. Mr. Wirz neglected to mention any of these facts about his source. The second dispute, Mr. Terry, is on-going and Highland’s numerous counterclaims against Mr. Terry will be substantially larger than the initial arbitration award. While Highland regrets having to litigate with former employees, the firm cannot reward extortive behavior.
Mr. Wirz also refuses to cover any positive legal or other news about Highland. Though he states that Highland has fought with investors since the financial crisis, he fails to mention that Highland was vindicated in every case ultimately decided by a court. Mr. Wirz mentions Highland’s financial crisis-era fights with counterparties, but fails to mention that Highland has achieved over $700 million in judgments and settlements for its investors. He also omits key industry context: despite these legal proceedings, Highland’s litigation docket is less than similarly situated asset managers and is not particularly litigious.
Of the recent interaction with Mr. Wirz, Andrew Merrill, a senior partner at a financial communications firm involved in the matter whose clients manage over $10 trillion, said, “In all the media interactions we’ve witnessed, this was among the most biased, unfair treatments we have ever seen, especially considering Highland’s willingness to engage in constructive dialogue and numerous attempts at information sharing.”
Evidently, this is not an isolated incident at the Journal. Ray Dalio’s account of Bridgewater’s interaction with two WSJ reporters from January of this year indicates there is a pattern of this behavior. (See Mr. Dalio’s account of Bridgewater’s experience here: The Fake and Distorted News Epidemic and Bridgewater’s Recent Experience with the Wall Street Journal).
As Mr. Dalio points out, the news media, unlike the asset management industry, exists without regulation and supervision. As such, there is no obvious recourse available to address unethical behavior. The closest proxy to regulatory standards in this instance is the Dow Jones Code of Conduct. (Read the full code of conduct here: Dow Jones Code of Conduct)
That document states:
“Dow Jones will suffer…if our customers cannot assume that:
Our facts are accurate and fairly presented;
Our analyses represent our best independent judgments rather than our preferences, or those of our sources, advertisers, or information providers;
Our opinions represent only our own editorial philosophies; or
There are no hidden agendas in any of our journalistic undertakings.
All companies profess business integrity. But the impact of our work on the work of others, and on their lives and fortunes, places special responsibilities upon all Dow Jones employees.”
In his interactions with Highland, Mr. Wirz violated those stated principles. Highland made those transgressions known to his editors, yet the WSJ proceeded to allow an inaccurate, misleading, agenda-driven article to be published with conclusions directly informed by a biased source.
 Highland is prohibited by agreement from disclosing the exact amount.