S3 Partners sues Ion’s Fidessa for breach of contract

S3 Partners, a data and research company that provides real-time short interest analytics to hedge funds and financial institutions, has filed a complaint against Ion Group-owned Fidessa for breaching a contractual obligation to invest $6.25 million into S3, as part of an investment agreement that the pair entered in August 2021.

According to the complaint, which was filed this morning in New York State’s Supreme Court, Ion’s founder and Fidessa’s control person, Andrea Pignataro, as well as Fidessa’s CFO, Kunal Gullapalli, have used “various means to attempt to mask the troubling fact that Fidessa cannot meet its capital call, including by making false promises and other baseless efforts to interfere with S3’s rights.”

A spokesperson for Ion categorically denies S3’s claims and says the company is taking steps to protect its interests and reputation in all relevant jurisdictions.

“Fidessa, a minority investor with over $33 million in S3, has been targeted with baseless claims by the company. S3, which has failed to meet its objectives, lacks audited accounts, carries a substantial debt and faces a severe cash shortage, is seeking additional funds by filing these unfounded claims against Fidessa,” the spokesperson said in a statement to WatersTechnology.

The complaint calls Fidessa and its owner, the Carlyle Group-backed Ion Group, over-leveraged and “laden with debt”—and asserts these as the reasons for Fidessa’s refusal to honor the investment agreement, which stipulated that S3 had the right to “call” Fidessa for up to $6.25 million for two years after the initial investment that closed in October 2021.

A spokesperson for S3 declined to comment beyond the complaint itself, which maintains that Fidessa and Ion are contractually obligated to honor an investment agreement that has been breached.

Fidessa received a request for funds from S3 in exchange for redeemable shares at the end of 2022, but Gullapalli stated that Ion would pay only when the 2021 audit was approved and circulated to all shareholders—a condition that was not part of the investment agreement, the complaint says. In January, Pignataro allegedly told S3’s board of managers that Fidessa was “good to go” with S3’s request for capital but wanted to receive S3’s audited financial statements first.

S3 claims it complied with Fidessa’s request for its audited financial statements in April but that Fidessa has still refused to comply with the investment agreement.

Ion acquired Fidessa in the summer of 2018, which prompted hundreds of resignations followed by months of inner turmoil caused by repeated rounds of redundancies, an exodus of long-time employees and all senior management, and client complaints about the service quality.

More recently, Ion came under fire its handling of a January cyber attack launched by infamous ransomware outfit LockBit, which took down several of Ion’s services, including futures trading platform XTP, a trade matching system, a margin calculation engine, and some lesser-used products. The event also forced some of the 42 affected banks—which included 20% of CME Group clearing members—to process trades manually and delay their regulatory reporting.

In late February, at least three affected banks were said to be weighing their legal options after the hack disrupted derivatives trading since the end of January, as the ordeal had drawn the scrutiny of regulators and law enforcement agencies around the world.

And a month after the attack, clients claimed to still be in the dark on how the hack had been resolved, as Ion representatives on client calls either denied paying the ransom or “dodged the question,” but hackers told Reuters their demands had been met by a “very rich unknown philanthropist.”

Ion, which has been aggressively acquisitive over the last several years, also saw its proposed bid for Prelios, an Italian bad loan management group owned by US investment fund Davidson Kempner Capital Management, stall in April after Ion failed to agree with lenders the terms of the financing, Reuters also reported. One month later, lenders and Ion reached a compromise that allowed the tech conglomerate to buy it.

In addition to Fidessa, Ion’s past acquisitions include Allegro, Openlink, Acuris, Broadway Technology’s FX business, Dash Financial, and Italian trading platform provider List.