Investment group connected to Aon founder Pat Ryan says data analytics firm swindled them out of millions

By Dana Herra | Mar 14, 2016

A wealthy and politically connected Chicago family is suing an executive they claim cheated them out of stock worth hundreds of millions of dollars to fulfill his own aspirations and allegedly cut out the investors on the cheap after their usefulness as a springboard had ended.

On March 8, Walworth Investments – LG LLC, an investment group involving the family of Aon founder and former Northwestern University board chairman Patrick Ryan, filed suit against Northbrook-based data analytics firm Mu Sigma, Inc., and its founder and CEO, Dhiraj C. Rajaram. Walworth was one of the first investors in Mu Sigma a decade ago, investing $1.5 million on behalf of the Ryan family. The year before the Ryan family’s investment, court documents state, Mu Sigma took in just $65,000 in revenue. With the help of the cash infusion and the reputational boost from being connected to such an influential family, the company grew exponentially, generating revenues of $14 million just two years later.

According to the lawsuit, Rajaram had always considered the company his alone, and had been loath to dilute his ownership stake by taking on the Ryan family’s investment. The lawsuit cited Rajaram’s “devotion to the Hindu deity Shiva,” claiming a religious philosophy of “destroying or selectively abandoning the past” led him to devise a plan to swindle the Ryans out of their stake in the company.

In 2010, the lawsuit said, with Mu Sigma bringing in millions in revenue and opening offices around the world, Rajaram decided to “boost his equity stake by cutting ties with an investor that had already served its purpose.” He approached Patrick Ryan Jr., the family member he had initially approached about the investment in 2006, and told him that despite the company’s recent performance, its future was bleak. The lawsuit claimed he said Mu Sigma was losing its biggest client, and that any future growth would come from acquisitions. He allegedly told Ryan he was offering early investors a buyout option so their capital would not be tied up in an investment that was not growing.

Trusting in Rajaram’s representation of Mu Sigma’s prospects, the lawsuit stated, Walworth entered into a repurchase agreement, in which it sold its more than 7 million shares of stock back to Mu Sigma for about $9.3 million. A few months later, Rajaram gave an interview to the Chicago Sun-Times in which he talked about the company’s growth potential. When Ryan approached him about the inconsistencies between the article and what he had told the Ryan family, the lawsuit alleged Rajaram gave him no reply.

Mu Sigma has issued a public statement that it is aware of the lawsuit and believes the charges to be without merit.

Walworth and the Ryan family say they would never have agreed to the repurchase agreement had they known Mu Sigma’s true financial picture. The $1.20-per-share price Walworth received for its shares of stock was 32 percent less than Rajaram received when he sold some of his own stock back to the company just a few months earlier. Walworth claimed Rajaram deceived the Ryan family to get them out of the company without having to buy them out at the stocks’ full market value.

The suit alleged counts of fraudulent inducement, fraudulent concealment, negligent misrepresentation, unjust enrichment, breach of fiduciary duty and breach of contract against Rajaram and Mu Sigma, and has requested punitive damages. Walworth has also asked the court to order Mu Sigma to return its shares of stock and pay the difference between what it received in the repurchase agreement and the shares’ true value.

Walworth is represented by attorneys with the firm of Kirkland & Ellis, of Chicago.

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