The ex-Sculptor executives asked a New York State Supreme Court judge to postpone a Nov. 16 shareholder vote on the $720 million deal until their case is resolved. The complaint follows a separate legal challenge pending in Delaware Chancery Court.

It's the latest wrinkle in a months-long bidding war for the struggling firm and may provide a fresh opening for a consortium led by hedge fund manager Boaz Weinstein, whose higher offers have been repeatedly rejected by Sculptor. Both court challenges could give Weinstein and his group of billionaire backers — including Marc Lasry, Jeff Yass and Bill Ackman — a path to acquire Sculptor through a tender offer.

The new lawsuit was brought by Akhil Mago, David Becker, Andrew Frank and Nathaniel Ewing, all former executive managing directors at Sculptor. They allege the New York-based firm zeroed out the value of shares that represented deferred compensation they were owed and instead redirected that money to other parties, including Sculptor founder Dan Och and Chief Executive Officer Jimmy Levin. 

"These claims are without merit and we will defend against them vigorously," a Sculptor spokesman said in an emailed statement. A representative for Och had no immediate comment.

Och left the firm, formerly known as Och-Ziff, as part of a 2019 restructuring, and the four former executives said they agreed to take Class E shares instead of immediately getting cash compensation they were owed.

Last month, as Sculptor sought to persuade Och and a separate cohort of former managers to support the Rithm deal, the hedge fund firm zeroed out the E shares without the former executives' consent, they alleged in the lawsuit. That freed up enough money to allow Rithm to raise its bid and win Och's support, without diminishing Levin's agreed-upon compensation package, according to the complaint. 

Sculptor's "purported discretionary reallocation of $127 million of merger currency, to stakeholders apparently deemed most important to getting the Rithm deal done, comes at the unlawful and direct expense of plaintiffs," they said in the lawsuit.

While Levin and other current Sculptor employees are also losing their E shares as part of the deal, they're being offered $35 million in a "retention pool" as well as a long-term compensation program in exchange, the plaintiffs alleged. 

Under the partnership agreement, Sculptor can't eliminate the payout to the former partners without prior written consent of the majority of the class E shareholders, even in the event of a merger, according to the lawsuit. 

Revenue Target

The four executives alleged they were within months of receiving their payout before their shares were wiped out. Under the 2019 partnership agreement, they were entitled to their distribution when the firm had accrued a cumulative $600 million of revenue. Sculptor was less than 10% away from that target as of June 30, according to the lawsuit.

A hearing in the Delaware case, filed by a Sculptor shareholder, is scheduled for Nov. 9 and could also result in a postponement of the shareholder vote.

Och, 62, built the firm into a hedge fund giant over a dizzying two-decade streak that catapulted him to the high table of finance. The former Goldman Sachs Group Inc. trader started out with $100 million handed to him by the Ziff brothers, the publishing scions, and built the firm into one with assets of almost $50 billion at its peak.

Sculptor has been decaying for most of the past decade. Investors pulled about $30 billion from its flagship fund since 2014, sparked by a bribery scandal in Africa. Och paid $2.2 million to the US Securities and Exchange Commission in 2016 to settle claims that he personally approved corrupt payments despite significant red flags. The firm paid more than $400 million to settle the case with the SEC and the US Department of Justice.

Shares of Sculptor slid 0.2% to $12.63 at 3:37 p.m. in New York. The stock has lost 96% of its value since the firm's 2007 initial public offering.