A Napkin Litigation Practice
Carried Interest and Private Fund Compensation Litigation
The Percentage Was Clear Until the Money Became Real.
Carried interest can be one of a fund professional’s most valuable assets. It can also be difficult to verify, value, transfer, or collect.
Carry can appear valuable on paper while remaining inaccessible, unverified, or controlled by someone else.
Lieb at Law represents fund professionals, partners, managers, founders, executives, and private investment firms in disputes over who owns the carry, how it is calculated, whether it vested, where the value moved, and whether dilution, forfeiture, withholding, or clawback is legally supportable.
We handle carried interest and private fund compensation disputes involving parties and interests connected to New York, New Jersey, and Connecticut.
Carry disputes often expose a larger institutional problem: the agreements, allocation records, financial reporting, employment terms, and actual operation of the firm no longer reflect the same economic deal.
When those inconsistencies are not identified early, a partner departure, investment exit, new fund launch, or distribution event can turn an internal compensation issue into an ownership, governance, accounting, and fiduciary dispute.
When Private Fund Economics Become a Lawsuit
A Carry Dispute Can Involve Compensation, Ownership, and Control
A carried interest dispute rarely concerns a single number. The claimed percentage may sit inside a management company, general partner, special-purpose vehicle, limited partnership, LLC, side letter, employment arrangement, deferred-compensation plan, or a series of agreements with different terms and purposes.
The dispute may begin when a professional leaves the firm, a fund closes, an investment exits, a distribution becomes payable, a successor vehicle is formed, or management changes the way value is allocated.
By then, the central questions may include:
- What interest was actually promised?
- Which entity issued or controls it?
- Did the interest vest?
- Was vesting tied to time, performance, an investment, a fund, or continued service?
- Can the interest be diluted, forfeited, repurchased, withheld, or clawed back?
- Was value moved into another fund, vehicle, affiliate, or opportunity?
- Are the available records sufficient to test the calculation?
- Does the claim belong to the individual, an entity, or both?
- What happens to the carry after resignation, termination, retirement, disability, or death?
Lieb at Law examines the agreements, allocation records, financial treatment, communications, and course of performance to determine what was promised, what vested, how the interest was calculated, and whether value was improperly withheld, forfeited, diluted, or redirected.
In carried-interest disputes, we analyze the distribution waterfall, including any hurdle rate or preferred return that must be achieved before carried interest becomes payable. We also examine whether the arrangement includes a hard or soft hurdle, catch-up provisions, high-water marks, clawbacks, and rules governing the treatment of fees, expenses, losses, and prior distributions.
Early Warning Signs
Warning Signs That Fund Economics No Longer Match the Deal
A carried-interest issue may require legal review before a complaint is filed. The warning signs often appear in the documents, financial reporting, allocation history, and treatment of departing professionals.
- Allocation schedules conflict with governing agreements
- A professional cannot verify how carry is being calculated
- K-1s, capital accounts, and distribution records do not align
- A new fund or affiliated vehicle receives opportunities expected to belong to an existing vehicle
- Carry percentages change without documented approval
- Vested interests are characterized differently after resignation or termination
- “Cause” is invoked when valuable carry becomes payable
- Management-company ownership and carry participation are treated as interchangeable
- Expenses, reserves, or fee offsets materially reduce an expected distribution
- Similarly situated partners receive inconsistent treatment
- Financial records needed to test the waterfall are withheld
- A restructuring changes where fees, investments, or economic interests are held
The legal significance of any inconsistency depends on the governing documents, authority, entity structure, financial records, course of performance, and applicable law.
Disputes We Handle
Disputes Often Begin When Carry Is Allocated, Distributed, or Forfeited
Carry Allocation and Percentage Disputes
Disputes over the percentage awarded, the investments or funds to which it applies, changes to allocation schedules, and inconsistent treatment among partners or professionals.
Vesting and Forfeiture
Claims involving time-based or performance-based vesting, good-leaver and bad-leaver provisions, termination for cause, resignation, retirement, disability, and post-separation forfeiture.
Withheld or Unpaid Distributions
Disputes over distributions that were delayed, withheld, offset, recharacterized, or paid differently from the governing allocation.
Clawbacks and Givebacks
Claims involving repayment obligations, escrowed amounts, tax distributions, fund-level clawbacks, individual givebacks, indemnification, and the allocation of losses.
Dilution and Reallocation
Disputes over whether carry was diluted, transferred, reallocated, or moved to insiders, replacement personnel, affiliates, successor funds, or new vehicles.
Partner and Executive Separation
Carry and compensation disputes arising after resignation, termination, retirement, removal, expulsion, or a breakdown among fund partners.
Management Company and GP Ownership
Disputes involving equity, profit interests, membership interests, voting authority, governance rights, and the relationship between ownership of the manager and participation in fund economics.
Fund Economics and Accounting
Disputes involving waterfalls, allocations, valuations, reserves, expenses, fee offsets, realized and unrealized gains, tax treatment, and the records used to calculate compensation.
Successor Funds and Diverted Opportunities
Claims that value, personnel, investments, opportunities, fees, or economic interests were redirected from an existing fund or business to a successor or affiliated vehicle.
Oral Promises and Informal Compensation Deals
Disputes based on offer discussions, emails, text messages, spreadsheets, allocation schedules, presentations, course of performance, and agreements that were never fully integrated.
When the disagreement also concerns ownership of the management company, voting rights, access to records, fiduciary duties, or control of the firm, review Lieb at Law’s business dispute litigation services.
The Employment Connection
When Carried Interest Is Also an Employment Dispute
A carried-interest dispute may depend on more than fund economics. Offer letters, employment agreements, compensation plans, allocation schedules, approval procedures, vesting terms, termination provisions, restrictive covenants, and severance releases may determine whether an interest was promised, earned, vested, forfeited, or subjected to a clawback.
Lieb at Law examines the employment and fund documents together to identify the controlling rights and determine the strongest litigation strategy.
Evidence and Financial Records
A Carry Dispute Requires Review of the Complete Record
The operative facts are often spread across documents created for different purposes and at different times. We review the agreements, award records, communications, financial statements, tax treatment, and course of performance together.
A reliable analysis requires more than reading the principal agreement. It requires determining whether the allocation history, financial treatment, amendments, approvals, tax records, and actual course of performance tell the same story.
We test whether the applicable hurdle was actually satisfied by reviewing capital accounts, fund performance, valuations, expenses, distributions, and the calculations used to allocate carried interest.
Governing Documents
- Limited partnership agreements
- LLC and operating agreements
- Management company agreements
- General partner agreements
- Carry plans and award agreements
- Side letters
- Subscription and joinder documents
- Employment and separation agreements
- Amendments and allocation schedules
Financial Records
- Capital-account statements
- Distribution notices
- Waterfall calculations
- Fund and management-company ledgers
- Valuation reports
- Expense allocations
- Fee-offset calculations
- Tax distributions
- K-1s and related tax records
- Records involving reserves, escrows, and clawbacks
Communications and Conduct
- Emails and text messages
- Offer and promotion discussions
- Internal presentations
- Compensation spreadsheets
- Statements made to investors or professionals
- Historical distributions
- Voting and management activity
- Treatment of similarly situated partners
- Conduct after separation
No one category automatically proves ownership or entitlement. The record must be tested as a whole.
For Funds and Management Firms
When Fund Leadership Needs Litigation Counsel
Carried-interest disputes do not affect only the person asserting a claim. They can create operational, governance, investor-relations, accounting, employment, and reputational risks for the fund and its management entities.
Lieb at Law works with fund founders, general partners, management companies, executives, investment professionals, and their existing advisors when a carry dispute requires a coordinated litigation strategy.
- Responding to an allocation or forfeiture challenge
- Investigating inconsistent compensation records
- Preserving communications and financial data
- Determining who had authority to award or modify carry
- Evaluating the effect of a partner departure
- Responding to books-and-records demands
- Preventing unnecessary disruption to fund operations
- Coordinating with fund, employment, tax, accounting, and valuation professionals
- Preparing for arbitration or emergency court proceedings
- Resolving the dispute without unnecessarily destabilizing the investment business
The appropriate response depends on the agreements, entities, forum, timing, evidence, and the firm’s practical business objectives.
Before a Complaint Is Filed
A Carry Dispute Should Be Audited Before Positions Harden
Not every disagreement should begin with a complaint. Before litigation, the parties may need to identify the controlling entities and agreements, preserve records, test the asserted calculation, locate missing documents, evaluate forum provisions, and define the economic result they are seeking.
- Pre-litigation document and governance audit
- Carry allocation reconstruction
- Books-and-records strategy
- Analysis of vesting and forfeiture provisions
- Review of amendments, consents, and approval authority
- Comparison of tax treatment with asserted ownership
- Separation and restrictive-covenant analysis
- Direct and derivative claim analysis
- Arbitration and forum evaluation
- Settlement and negotiated separation strategy
The Napkin Litigation Framework
A Four-Phase Method for Carried Interest Litigation
Lieb at Law uses a four-phase litigation method to organize carried interest disputes. We preserve the evidence, identify the relevant entities and economic interests, compare the governing documents with the financial records and course of performance, and pursue a result tied to the client’s legal and economic objectives.
Protect and Audit
Preserve communications and financial evidence, identify every relevant entity and economic interest, obtain the controlling documents, and determine whether immediate action is needed before records or value move.
Test Governance
Compare the formal agreements and allocation records with the parties’ representations, tax treatment, historical payments, authority, amendments, and actual course of performance.
Integrate Strategy
Coordinate the contract, compensation, ownership, fiduciary-duty, governance, accounting, and separation issues into one litigation strategy while identifying the proper claimant, forum, and available relief.
Recover and Stabilize
Pursue access to records, payment, an accounting, declaratory relief, damages, preservation of disputed value, negotiated separation, or another enforceable economic resolution supported by the facts and law.
When the Professional Leaves
Separation Does Not Automatically Answer Who Owns the Carry
Many carried interest disputes arise only after the working relationship ends. The firm may characterize the interest as contingent compensation that disappeared upon departure. The professional may view it as a vested economic interest earned through years of work, fundraising, sourcing, management, or portfolio-company performance.
The answer may depend on several connected documents and events, including the reason for separation, the language of any forfeiture provision, amendments to the governing agreements, prior distributions, treatment of other partners, continued obligations, and whether the disputed value relates to work performed before departure.
When carry is disputed after termination, resignation, retirement, or another workplace separation, compensation and restrictive covenant issues may also require an employment litigation analysis.
The Interest
- What vested before separation?
- What remained contingent?
- Which fund or investment generated the value?
- Did later amendments change the allocation?
- Was the interest repurchased or merely declared forfeited?
- Were successor vehicles used to redirect value?
The Separation
- Was the departure voluntary or involuntary?
- Was “cause” properly invoked?
- Were notice and approval procedures followed?
- Did restrictive covenants or release terms affect payment?
- Was the professional treated differently from others?
- Do ongoing information, indemnification, or clawback obligations remain?
The Claim and the Remedy
The Litigation Strategy Must Be Tied to a Practical Result
A carried interest claim must be connected to a practical economic objective. Depending on the governing documents, evidence, jurisdiction, and procedural posture, that objective may involve obtaining records, confirming ownership, correcting an allocation, stopping an unsupported forfeiture, recovering a distribution, testing a clawback, tracing diverted value, or resolving the parties’ continuing relationship.
Potential Litigation Objectives
- Books-and-records access
- Contract enforcement or defense
- Declaratory relief
- Accounting
- Recovery of unpaid compensation or distributions
- Fiduciary-duty claims or defenses
- Challenges to dilution, forfeiture, or reallocation
- Preservation of disputed funds or evidence
- Direct and derivative claim analysis
- Valuation and damages analysis
- Arbitration or forum disputes
- Negotiated partner separation
- Enforcement of settlement or separation terms
- Recovery involving diverted or successor-vehicle value
The availability, name, elements, timing, and scope of any claim or remedy depend on the governing documents, parties, entity structure, forum, jurisdiction, and evidence.
A carried interest dispute may involve several related claims. The litigation can concern breach of contract, unpaid compensation, ownership and governance rights, access to books and records, fiduciary duties, financial accounting, partner separation, or the diversion of value to another person or entity. Lieb at Law develops the claims and defenses around the governing documents, financial evidence, entity structure, and client’s economic objective.
Related contract, accounting, fraud, and business tort claims may also become part of the firm’s commercial litigation strategy.
Who We Represent
Representation Across the Private Fund Relationship
Individuals and Professionals
- Fund founders
- General partners
- Managing members
- Portfolio managers
- Operating partners
- Principals
- Executives
- Investment professionals
- Departing and former partners
- Professionals asserting vested compensation rights
- Estates or beneficiaries dealing with a deceased professional’s economic interests
Funds and Firms
- Private equity firms
- Hedge funds
- Venture capital firms
- Credit funds
- Real estate investment funds
- Family offices
- Management companies
- General partner entities
- Closely held investment businesses
- Firms responding to allocation, forfeiture, clawback, or separation claims
For Referring Professionals
Litigation Counsel Working Alongside Fund and Financial Advisors
Fund counsel, employment counsel, accountants, tax professionals, valuation professionals, compliance consultants, financial advisors, and internal operations teams may each hold a different part of the record. Lieb at Law coordinates the disputed legal and economic issues without displacing the professionals responsible for the fund’s continuing tax, accounting, regulatory, transactional, or operational work.
When a dispute involves several proceedings, entities, or professional teams, Lieb at Law can coordinate the litigation strategy as outside litigation counsel.
Attorney and Speaker
Mordy Yankovich, Partner
Commercial Litigation | Compensation Litigation | Napkin Litigation | Arbitration
Mordy Yankovich represents investors, fund professionals, executives, founders, and closely held investment businesses in commercial and compensation litigation involving carried interest, executive equity, incentive compensation, profit participation, vesting, forfeiture, clawbacks, governance, fiduciary obligations, partner separation, arbitration, and access to financial records.
His compensation litigation work includes disputes over employment agreements, compensation plans, allocation records, vesting terms, forfeiture provisions, and post-separation rights.
Admitted in New York and New Jersey and before the Southern and Eastern Districts of New York and the District of New Jersey, Mordy also teaches continuing legal education programs for attorneys.
Professional Education
Carried Interest Education for Investment Professionals
Lieb at Law provides educational programs addressing how carried-interest disputes develop, which records become critical, and how fund professionals can identify inconsistencies before a departure, distribution, forfeiture, or clawback produces litigation.
When the Carry Disappears: Vesting, Forfeiture and Clawback Disputes
The Documents Say One Thing. The Money Says Another.
The First 72 Hours of a Fund Partner Dispute
Additional Practice Areas
Related Litigation Services
Frequently Asked Questions About Carried Interest Disputes
What is carried interest?
Carried interest, often called “carry,” is a right to participate in the profits generated by a private investment fund or particular investments. The governing documents determine who participates, how the interest is calculated, when it vests, and what can happen after separation from the firm.
Can a firm take away vested carried interest?
That depends on the governing documents, applicable law, the circumstances of separation, amendments, approvals, and the evidence concerning vesting and forfeiture. Calling an interest “forfeited” does not by itself resolve whether the forfeiture was contractually and legally supportable.
What documents control a carried interest dispute?
Relevant documents may include fund agreements, management-company and general-partner agreements, operating agreements, carry plans, award notices, allocation schedules, side letters, employment agreements, separation agreements, amendments, distribution records, tax records, and related communications. More than one document may govern different parts of the dispute.
Can emails or compensation spreadsheets establish a right to carry?
They may provide important evidence of a promise, allocation, amendment, representation, or course of performance. Their legal effect depends on the governing agreements, authority of the sender, surrounding communications, formal requirements, and applicable law.
What is a carry allocation dispute?
A carry allocation dispute concerns who is entitled to participate in fund or investment profits and in what percentage. The dispute may involve an initial award, a later reallocation, dilution, changes among investments, successor funds, or inconsistent records.
What is a hurdle rate in a carried-interest arrangement?
A hurdle rate is the minimum return specified by the governing documents that generally must be achieved before carried interest is paid. Disputes can arise over how the return was calculated, which expenses were deducted, whether losses from earlier periods were considered, and how catch-up or clawback provisions affect the final allocation.
What happens to carried interest when a partner leaves a fund?
The answer may depend on vesting, good-leaver or bad-leaver provisions, the reason for departure, repurchase rights, forfeiture provisions, restrictive covenants, amendments, historical practice, and the particular fund or investments that generated the value.
Can a former fund professional obtain the records used to calculate carry?
Contractual rights, entity law, discovery procedures, and the person’s ownership or compensation status may provide different routes to seek relevant information. The appropriate demand or procedure depends on the entity, documents, forum, and dispute.
What is a carried interest clawback?
A clawback is a mechanism that may require previously distributed amounts to be returned or adjusted, often because later fund performance changes the overall profit allocation. Disputes may concern the calculation, timing, allocation among participants, reserves, tax effects, and whether the asserted obligation is authorized by the governing documents.
Can a carried interest dispute involve fiduciary duties?
Potentially. Fiduciary-duty issues may arise where a person with control allegedly reallocates value, withholds information, engages in self-dealing, diverts an opportunity, or misuses authority. Whether a duty exists and who may assert the claim depend on the entity, relationship, governing law, and nature of the alleged injury.
Is a carried interest claim a direct claim or a derivative claim?
It may be direct, derivative, or involve both types of alleged injury. The analysis depends on who suffered the harm, which right was violated, and who would receive the benefit of any recovery. The distinction can affect standing, pre-suit requirements, available remedies, and litigation strategy.
Can a carried interest dispute be arbitrated?
Yes, if an enforceable arbitration provision applies to the dispute and parties. Because a fund relationship may involve several agreements with different forum provisions, the first dispute can be over where the underlying dispute must be heard.
How is the value of disputed carry determined?
Valuation may require analysis of the governing waterfall, realized and unrealized investments, reserves, expenses, fee offsets, fund performance, valuations, future contingencies, distribution history, and the probability and timing of future proceeds. The proper approach depends on the claim and available evidence.
Does Lieb at Law handle carried interest disputes in New York, New Jersey, and Connecticut?
Lieb at Law handles carried interest and private fund compensation disputes involving parties, entities, agreements, proceedings, or economic interests connected to New York, New Jersey, and Connecticut. Jurisdiction, venue, governing law, and attorney-admission requirements must be evaluated for each matter.
Carried Interest Litigation Counsel
Discuss a Carried Interest or Private Fund Compensation Dispute
Whether the dispute concerns an individual allocation or a breakdown affecting the management company, Lieb at Law identifies the controlling entities, reconstructs the economic record, tests the asserted calculation, and develops a strategy designed to protect the client’s position and the disputed value.
This page provides general information, not legal advice. Legal rights and available remedies depend on the governing documents, facts, parties, forum, jurisdiction, and applicable law. Viewing this page or contacting the firm does not create an attorney-client relationship.