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Fidelity Charitable Can’t Duck $100M Stock Donation Lawsuit

Nov. 29, 2018, 5:55 PM

The owners of San Francisco investment adviser Ascend Capital advanced a lawsuit accusing Fidelity Investments Charitable Gift Fund of mishandling their $100 million stock-based donation.

Emily and Malcolm Fairbairn brought valid claims of misrepresentation and negligence against the facilitator of charitable donations, a federal judge in California ruled Nov. 28. The judge also rejected Fidelity Charitable’s argument that only state attorneys general—and not individual donors—have standing to sue over mismanagement of charitable funds.

The case involves “donor advised funds,” which allow donors to contribute assets to nonprofit organizations like Fidelity Charitable while maintaining control over how the funds are distributed. The funds—which can accept donations made in stock, cryptocurrency, and other complex assets—held more than $85 billion as of 2016, with more than $16 billion held by Fidelity Charitable, according to the complaint.

The Fairbairns say Fidelity Charitable made “false promises” to secure their $100 million donation that included stock in Energous, a wireless charging company whose stock soared 39 percent when Energous’s core technology received government approval on Dec. 26, 2017. Fidelity Charitable liquidated this stock three days later without authorization and using unsophisticated trading strategies, causing the stock’s value to drop 30 percent and leaving the Fairbairns with less to give to charity and more to pay in taxes, the couple claims.

The Fairbairns, who were “angel investors” in Energous, initiated the donation in part to lessen the heavy tax bill tied to their stock in the company. They intended the donation to go toward fighting Lyme disease, which they say had recently stricken their entire family.

The decision allowing the case to proceed was written by Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California.

Stris & Maher LLP represents the Fairbairns. Wilmer Cutler Pickering Hale & Dorr LLP represents Fidelity Charitable.

The case is Fairbairn v. Fid. Invs. Charitable Gift Fund, 2018 BL 438446, N.D. Cal., No. 3:18-cv-04881-JSC, 11/28/18.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com