A prominent Silicon Valley investor is in a bitter dispute with his former employer, one of the world’s largest asset managers, accusing it of fraud and attempted bribery.
In a lawsuit filed on Thursday in California, Josh Raffaelli, who until late last year was a fund manager at Brookfield Asset Management, said the company had mistreated investors in his funds as it sought to make up for losses in other parts of its business.
The 100-page complaint is notable in part because Mr. Raffaelli has close ties to Elon Musk, the world’s richest man. That relationship enabled Mr. Raffaelli’s funds to put money into Mr. Musk’s private companies, a coveted opportunity in Silicon Valley. But among Mr. Raffaelli’s allegations is that Brookfield improperly limited the amount that he could invest in a Musk company on behalf of Brookfield’s clients.
In December, shortly after Mr. Raffaelli filed a whistle-blower complaint with the Securities and Exchange Commission, Brookfield fired him, according to his lawsuit.
“Brookfield repeatedly betrayed the trust and best interests of its investors, and then fired the employee who challenged its behavior,” said Mark Mermelstein, Mr. Raffaelli’s lawyer.
Brookfield manages more than $1 trillion on behalf of pension plans, government investment funds and financial institutions. Until January, its chairman was Mark Carney, Canada’s new prime minister.
“This suit is absolutely without merit and these baseless claims run counter to how Brookfield manages its business,” said Kerrie McHugh, a spokeswoman for Brookfield. “We will vigorously defend against this meritless suit, which was brought by a disgruntled former employee.”
Mr. Raffaelli, 45, has had a long career in Silicon Valley. In 2004, he became an analyst at what was then called Draper Fisher Jurvetson, a leading venture capital firm. At the time, Mr. Musk was on the ascent in Silicon Valley. He had recently founded the rocket company SpaceX and made an early investment in Tesla, which would become the world’s most valuable car company.
By 2009, Mr. Raffaelli was a board observer at both SpaceX and Tesla, according to his LinkedIn profile. That entitled him to attend the companies’ confidential board meetings. The proximity to Mr. Musk also gave Mr. Raffaelli the opportunity to invest his clients’ money in the billionaire’s private ventures. In Silicon Valley, that access made Mr. Raffaelli a hot commodity in his own right.
In 2017 he joined Brookfield, working out of its San Francisco office. His job was to manage a handful of funds that would invest clients’ money in technology companies. His base salary was $500,000, but his bosses told him that if his funds performed well, his total compensation could ultimately be in the tens of millions of dollars, according to the lawsuit, filed on Thursday in Superior Court in San Mateo, Calif.
In part to attract outside investors, Brookfield agreed to put its own money in Mr. Raffaelli’s funds, meaning the company’s financial interests would be aligned with those of its clients. By 2024, his funds collectively managed more than $1.75 billion, which came from pension funds, other outside investors and Brookfield itself.
Tapping his contacts in Mr. Musk’s orbit, Mr. Raffaelli arranged for his funds to invest in several of Mr. Musk’s private businesses, including SpaceX, the artificial-intelligence company xAI and the tunnel-building venture known as the Boring Company, according to Mr. Raffaelli’s lawsuit and people familiar with the investments.
But Brookfield soon encountered financial problems, according to the lawsuit. The Covid-19 pandemic had hammered the commercial real estate industry, in which Brookfield and its affiliates were major investors. Brookfield Property Partners, the asset management firm’s sister company, lost about $2 billion in 2020.
That set the stage for Brookfield to begin engaging in fraud, Mr. Raffaelli said in the lawsuit.
Short on cash, Brookfield in 2024 backtracked on some of its pledges to put hundreds of millions of dollars into Mr. Raffaelli’s funds alongside outside investors, the lawsuit said.
Around the same time, Brookfield also vetoed a proposal from an unspecified “major foreign conglomerate” that wanted to invest up to $100 million in one of Mr. Raffaelli’s funds, the lawsuit said, describing that decision as “indefensible.”
The combined result was that there was less money than expected for Mr. Raffaelli to invest. That, in turn, limited the potential upside for Brookfield’s outside clients, the lawsuit said.
Already, Mr. Raffaelli said, he had been forced to sharply reduce — from $25 million to $5 million — the amount that one of his funds planned to invest in Mr. Musk’s xAI. (The lawsuit did not identify xAI by name, but people familiar with the investments confirmed it.)
“That is like walking away from the chance to buy Facebook or Apple stock” at a bargain price, the lawsuit said. “The markets expected this investment to go nowhere but up, and that is exactly what has happened.” The estimated value of xAI has more than tripled to $80 billion over the past year.
Last summer, Brookfield informed Mr. Raffaelli that the firm was thinking of merging his funds into a company called Pinegrove Capital Partners, according to his lawsuit.
Mr. Raffaelli started looking into Pinegrove, an asset manager that was mostly owned by Brookfield. He was alarmed by what he found. He said that Pinegrove had exaggerated its capital levels by more than $100 million, making it appear financially stronger than it really was. Hundreds of institutions — including nonprofit organizations and pension funds for police officers and firefighters — had been persuaded under false pretenses to entrust their money to Pinegrove, according to the lawsuit.
Last October, Mr. Raffaelli anonymously reported his findings to Brookfield through the company’s whistle-blower website. A few weeks later, he said, he submitted a complaint to the S.E.C.
Shortly after, Mr. Raffaelli’s boss, Anuj Ranjan, told him that Brookfield’s chief executive had signed off on the decision to fold his funds into Pinegrove. According to the lawsuit, Mr. Ranjan acknowledged to Mr. Raffaelli that the move was not good for his clients but was designed to prop up Pinegrove and save money for Brookfield. Mr. Raffaelli viewed this as a violation of federal securities laws.
Mr. Ranjan did not respond to a request for comment.
The investors in Mr. Raffaelli’s funds needed to approve the Pinegrove merger. Brookfield pushed Mr. Raffaelli to pitch them on it “because his credibility would resonate better with the investors that trusted him,” the lawsuit said.
In exchange for his help, Mr. Raffaelli said, Brookfield offered to pay him an amount “way beyond” what he was currently owed. He said the head of the company’s human resources department then sent him a spreadsheet showing he could eventually be due as much as $46 million under his existing compensation agreement.
Mr. Raffaelli said he viewed that as Brookfield offering him a bribe.
The following week, Mr. Raffaelli sent the general counsel at Brookfield Asset Management the complaint he had previously sent to the S.E.C.
“As uncomfortable as this is for me, I wanted to share with you that I felt I had an obligation to blow the whistle on certain illegal conduct,” he wrote, according to the lawsuit.
Nine days later, Mr. Raffaelli said, he was fired.
