A well-known Silicon Valley investor has been in a fierce controversy with his former employer, one of the world's largest asset managers, and has denounced fraud and attempted bribery.
In a lawsuit filed Thursday in California, Joshu Rafaelli, a fund manager at Brookfield Asset Management until the end of last year, said the company abused investors in the funds as it tried to make up for losses elsewhere in the business.
The 100-page complaint is notable in part because Rafaelli has a close relationship with Elon Musk, the richest man in the world. That relationship allowed Rafaelli's funds to put money into Musk's private businesses, a much-needed opportunity in Silicon Valley. However, some of Raffaelli's allegations are that Brookfield inappropriately limits how much he can invest in a mask company on behalf of Brookfield's clients.
According to his lawsuit, Brookfield fired him shortly after Raffaelli filed a whistleblower complaint with the Securities and Exchange Commission.
“Brookfield repeatedly betrays the trust and best interests of investors and fires employees who challenged the actions,” said Mark Melmelstein, Mr. Rafaelli's attorney.
Brookfield manages more than $1 trillion on behalf of pension plans, government investment funds and financial institutions. Until January, the chairman was Mark Carney, Canada's new prime minister.
“The lawsuit is absolutely merit-free, and these unfounded claims go against the way Brookfield manages its business,” said Kelly McHugh, a spokeswoman for Brookfield. “We will vehemently defend this useless lawsuit brought on by a disgruntled former employee.”
Raffaelli, 45, has had a long career in Silicon Valley. In 2004 he became an analyst known as Draper Fisher Jur Betson, a major venture capital firm. At the time, Musk was on the rise in Silicon Valley. He recently founded Rocket Company SpaceX and invested early in Tesla. This will become the most valuable car company in the world.
By 2009, Raffaelli was an observer on both SpaceX and Tesla's boards, according to his LinkedIn profile. It was entitled to attend a meeting of the company's confidential committee. The proximity to Musk also gave Rafaelli the opportunity to invest his client's money in a billionaire private venture. In Silicon Valley, that access made Rafaelli a hot product in itself.
In 2017 he joined Brookfield and worked in his San Francisco office. His job was to manage a small number of funds investing clients' money in technology companies. His base salary was $500,000, but his boss told him that if his funds worked well, his total compensation could ultimately be tens of millions of dollars.
Partly attracting outside investors, Brookfield agreed to put his money into Mr. Rafaelli's funds. This means that the company's financial interests are consistent with the client's financial interests. By 2024, his funds had collectively managed more than $1.75 billion, which came from the pension fund, other outside investors, and Brookfield itself.
Tapping Musk's contacts on track, Rafaelli arranged for funds to invest in some of Musk's private companies.
However, according to the lawsuit, Brookfield soon encountered financial problems. The Covid-19 pandemic has hampered the commercial real estate industry, where Brookfield and its affiliates were key investors. Brookfield Property Partners, a sister company to the asset management company, lost about $2 billion in 2020.
That was the setting for Brookfield to begin engaging in fraud, Rafaelli said in the lawsuit.
With cash shortages, Brookfield backs up some of its pledges in 2024 to put hundreds of millions of dollars into Rafaelli's funds alongside outside investors.
Around the same time, Brookfield also rejected a proposal from an unspecified “major foreign nationals” who wanted to invest up to $100 million in one of Mr. Rafaelli's funds, describing the decision as “undefensive.”
The combined result was that Raffaelli had less money than expected to invest. This limits potential benefits for Brookfield's external clients, the lawsuit said.
Already, Raffaelli said one of his funds had been forced to reduce the amount that Musk planned to invest in Xai from $25 million to $5 million. (The lawsuit didn't identify Xai by name, but those familiar with investments confirmed it.)
“It's like walking away from the opportunity to buy stocks in Facebook or Apple,” at bargain prices, the lawsuit said. “The market was hoping that this investment would go anywhere. That's exactly what happened.” Xai estimates have more than tripled over the past year.
Last summer, Brookfield told Rafaelli that he was considering merging his funds into a company called Pinegrove Capital Partners, according to his lawsuit.
McHugh, a Brookfield spokesperson, said Rafaelli's funds were not working well. Raffaelli's lawyer disputed it by saying the funds were one of Brookfield's best performances.
Raffaelli began considering Pinegrove, the asset manager that was primarily owned by Brookfield. He was worried about what he had found. He said Pinegrove has oversaw its capital level over $100 million, making it appear economically stronger than it actually is. Hundreds of agencies, including nonprofits and pension funds for police officers and firefighters, have been persuaded to defer money to Pinegrove by pretending to be false, according to the lawsuit.
Last October, Raffaelli anonymously reported his findings to Brookfield through the company's whistleblower website. A few weeks later, he said he had filed a complaint with the SEC.
Shortly afterwards, Rafaelli's boss Anujanjan told him that Brookfield's chief executive had signed the decision to fold his funds into pine groves. According to the lawsuit, Ranjan admitted to Rafaelli that the move was not good for his clients, but that it was designed to save money by supporting the pioneering groves for Brookfield. Raffaelli viewed this as a violation of federal securities laws.
Ranjan did not respond to requests for comment.
Investors in Raffaelli's funds had to approve the Pinegrove merger. Brookfield said he pushed Rafaeli to pitch him, “Because his credibility resonates better with investors who trusted him.”
In exchange for his help, Rafaelli said Brookfield offered to pay an amount “more than that” what he was currently owing. He said the company's HR head sent him a spreadsheet showing that he could ultimately end up at $46 million under his existing coverage agreement.
Raffaelli said he sees Brookfield as providing him with a bribe.
The following week, Raffaelli sent a complaint he had previously sent to the SEC to the General Counsel in Brookfield Asset Management.
“This is uncomfortable for me, but I wanted to share with you that I felt I had an obligation to blow a whim to certain illegal activities,” he wrote.
Nine days later, Raffaelli said he had been fired.
