A UK High Court has ruled that Evolution Capital Management (ECM) must pay a £4.5 million bonus to its former star trader, Robert Gagliardi, after the hedge fund’s boss refused the payment amid concerns over a regulatory investigation. The decision was handed down following a dispute between Gagliardi and ECM’s manager, Michael Lerch.
Gagliardi, who joined ECM after being recruited from a competing firm, was responsible for generating 97% of the company’s profits in 2022. His employment contract included a discretionary bonus clause entitling him to between 10% and 15% of profits, contingent on performance. However, Lerch withheld the bonus, citing fears arising from an ongoing probe by U.S. regulators into market abuse related to block trading activities.
The High Court rejected Lerch’s argument that the discretionary nature of the bonus allowed the company to withhold payment entirely. Mr Justice Carver described ECM’s decision to delay the bonus payment as “irrational” and based on improper considerations, noting that the firm had adopted a “wait and see” stance during the U.S. regulatory review. The judge emphasized that the investigation did not result in any charges against Gagliardi, undermining ECM’s justification for withholding the bonus.
During the trial, Gagliardi recalled that when he requested the bonus payment, Lerch dismissed him with the remark, “I’m not going to pay you the bonus, f*** you, sue me.” Following this, Gagliardi initiated legal action to claim the bonus. Lerch responded with a counterclaim seeking to recover more than £5 million in salary and prior bonuses, but the court dismissed this as “hopelessly vague” and described it as an “embarrassing” attempt.
In addition to the bonus payment, ECM has been ordered to pay interest on the outstanding amount, which could reach an additional £1.5 million, and is expected to cover the majority of Gagliardi’s reported £2 million in legal costs. The ruling represents a significant rebuke of the fund manager’s handling of the dispute and highlights the limits of discretionary bonus clauses when linked to employee performance.