Mu Sigma prevails in a David vs Goliath fight starring Lord Shiva

The Illinois Supreme Court ultimately sided with Rajaram, dismissing the allegations of fraudulent concealment, negligent misrepresentation, unjust enrichment, breach of fiduciary duty and breach of contract. Moneycontrol has reviewed court documents related to the original complaint and the outcome. While Rajaram did not comment on the case, a reaction from Walworth Investments is awaited.

What were the allegations?

In 2016, Patrick Ryan, the founder of Aon Corporation and an investor in the American football team Chicago Bears, accused Mu Sigma and its founder, Dhiraj Rajaram, of “grossly misleading” his Walworth Investments, an early investor in the company. He claimed Mu Sigma painted a dim picture of its growth prospects to buy back the 17.5 percent stake that Walworth held in it.

 The allegations against Rajaram included claims of greed, fraud and concealment. One of the more unusual accusations was that Rajaram was influenced by his devotion to the Hindu deity Shiva.

“This perverse mindset—which turned traditional fiduciary duty principles on their head—had its roots in Rajaram’s devotion to the Hindu deity Shiva the Destroyer, whose core philosophy called for “destroying or selectively abandoning the past”,” the complaint read.

Apart from the capital, the allegation was that it was the family’s reputational capital which let Mu Sigma develop a client roster which included several Fortune 500 companies and institutional investors. “After Mu Sigma had reaped the benefits of the Ryan Family’s investment….Rajaram embarked on a scheme to oust Walworth, and its 17.5 percent ownership stake, from his company,” it alleged.

According to the complaint, Mu Sigma’s revenue was around $65,000 around the time they invested in 2006. Two years later, it was $4.4 million, and a year later, it was up to $14 million.

In May 2010, the shares of Walworth were bought back for roughly $9.32 million. The trigger for this, according to the complaint was that Rajaram told Patrick Ryan’s son that the company wouldn’t grow explosively anymore, and not be the success they thought it would be and he was giving them an opportunity to cash out their investments.

An email sent by Rajaram in 2010 to Ryan’s son who was handling this — a copy of which Moneycontrol has seen — said that the company was moving from explosive growth to steady growth. “Mu Sigma has weathered the recession well…But like every other business we must adjust to the reality of the “new normal” the economy presents to us,” it said, stating that many Series A investors cashed out.

The complaint had claimed that the motives were greed and self-interest, where the company belonged to Rajaram alone and that he wanted to own as much of it as possible. It alleged that the only way for Rajaram to achieve his goal of becoming a billionaire Indian American entrepreneur was to figure out a way to buy out a significant shareholder at an artificially low price.

How Mu Sigma won the case

Walworth had filed its case in the Circuit Court of Cook County in Illinois, which sided with Rajaram. This was then appealed, with the appellate court deciding in favour of Walworth.

On November 28, 2022, the Illinois Supreme Court’s judgement was in favour of Rajaram and affirmed the judgment of the circuit court.

At the centre of the dispute was the stock repurchase agreement or SRA — and the allegations that Walworth was forced to enter an SRA to sell a substantial ownership stake in the company. A part of that was it did not receive certain documents and did not have the information needed as the company was doing well contrary to what they heard.

However, as per the court’s judgement, the SRA that had been signed said they had received all the information needed to decide to sell the stock, and that Rajaram hadn’t made any “representation or warranty, express or implied, except as set forth [in the SRA], regarding any aspect of the sale[,] and purchase of the Repurchased Stock, the operation or financial condition of the Company or the value of the Repurchased - 18 - Stock,” adding that the language, in this case, was clear.

The court said that the parties were sophisticated and represented by counsel.

“Yet, in its second amended complaint, plaintiff [Walworth Investments] pleaded allegations of fraud in the inducement based on Rajaram’s extracontractual statements, made to plaintiff before it entered the SRA. If plaintiff had relied on statements made outside of the SRA, it should not have signed an agreement expressly stating that no such representations had been made to it.”

Additionally, the suit had been brought six years after the stake of Walworth was bought out by Rajaram.

The order said that Walworth said in writing that “no representations were made to it regarding Mu Sigma’s operation, financial condition, or value other than as set forth in the SRA itself” and that it had received all information necessary to decide.

On the allegation that Rajaram breached his obligation of loyalty by acting in his self-interest and to the detriment of Walworth, the court said a corporation does not owe a fiduciary duty to its shareholder. It also said that as per the law prevalent, there isn’t an affirmative duty for disclosures in individual transactions.

Also, since the two engaged in an arm’s-length negotiation, Walworth wanting a higher price for its shares was in opposition to the interests of Mu Sigma and its shareholders.

Mu Sigma

Started by Rajaram in 2004, Mu Sigma works in the data analytics space and is currently headquartered in the US. The company had become a unicorn in 2013 following its Series D round. Last year, Rajaram bought out his investors Sequoia and General Atlantic and regained full ownership of the company. The company currently has over 3,500 employees and is profitable.

Mu Sigma also spawned a generation of specialists and founders in the data analytics space, who went on to lead data functions at leading consumer internet startups in India and multinational firms, apart from starting up their own firms.