In-Kind Distribution Turns Unkind

A venture capital firm executed an in-kind distribution shortly after taking a portfolio company public. The shares designated for distribution, as a matter of normal business practice, were placed in the custody of a third party. Due to a processing error, several limited partners were not notified about the stock distribution and that the portfolio company shares were available for trading. The error was discovered several months later, by which time the stock value had dropped significantly. In order to recoup the lost value of the stock, the limited partners sued the management company of the firm and the fund through which the PC investment had been made, alleging they had failed to provide notification of the in-kind distribution.