Two former employees of El Segundo-based investment bank CriticalPoint Partners accused of siphoning confidential client data will return “illicit profits” made from the scheme, an arbitrator ruled. 

In a Superior Court of California case, CriticalPoint alleged two ex-vice presidents – Phillipe Didisheim and Chapin Newhard – breached confidentiality contracts when they compiled client lists from its buy-side deal sourcing business to launch their own rival firms 48North and Anvil. 

CriticalPoint built its case on emails and texts between Didisheim and Newhard as they exchanged information on clients and companies targeted for acquisition. 

Sasha Frid, the firm’s attorney, said CriticalPoint’s deal sourcing database is its “bread and butter,” containing valuable information on client financials, merger and acquisition plans and more.

“They would use the contacts that we had, the potential deals that we had going, to try to see if they could shop it somewhere else,” said Frid, a partner at Century City-based law firm Miller Barondess.

The final ruling March 19 decided Newhard and Didisheim would disgorge the $1.18-million profit they earned, mostly through retainer fees, from their competing businesses. Case evidence revealed the ex-employees were “fully aware that their actions were improper and deliberately sought to conceal their conduct,” according to the arbitration ruling. 

“There is no clearer case than this where wrongdoers, Newhard and Didisheim, should not be able to retain illicit profits from engagement contracts obtained at the expense of (CriticalPoint),” the arbitrator wrote.

The court also issued an injunction against the respondents, which bars them from using or disseminating any of CriticalPoint’s client data. The move clears the way for CriticalPoint to search its former employees’ devices for any other undisclosed confidential information.

“They are required to open up their books, and we’re going to go in with a forensic team to figure out how much they stole,” Frid said. “We think that there’s much more.”

Attorneys for Newhard and Didisheim did not respond to the Business Journal’s request for comment.

Plan to ‘lure them away’

UNC Chapel Hill graduates Newhard and Didisheim landed jobs at CriticalPoint freshly out of college, working up to business development VP roles. While employed, they began to plan on starting a competing buy-side company, recruiting another CriticalPoint employee, Jared Roberts, according to the court filing.

Newhard resigned in January 2022 while Didisheim kept his job and looked to leave in early 2023. In the fall of 2022, they ramped up concrete discussions on their planned company, 48North, exchanging messages about a number of companies CriticalPoint was engaging with plans to “lure them away,” the arbitrator wrote.

A year after his resignation, Newhard incorporated 48North. Didisheim left CriticalPoint in February 2023 and split off from Newhard to start his own firm, Anvil, a few months later. Through Anvil, Didisheim competed with CriticalPoint in the deal origination business by using the firm’s confidential information to contact 16 companies, according to the arbitration filing. 

CriticalPoint sought compensation for $3.8 million in lost profits from the companies 48North and Anvil targeted. According to CriticalPoint, that figure came from “a loss of $9,362,500 in gross revenue, stemming from the permanent loss of 22 client engagements. The profit margin in the deal sourcing team is north of 40%.”

The firm also argued that Newhard and Didisheim’s actions hurt its reputation.

In a statement cited in the final decision, CriticalPoint Chief Executive Matt Young said the private equity players that hire his team to perform deal origination services “have a full expectation as part of the service that they’re going to get full confidentiality, and if information is leaked and information is out there, they’re likely to terminate us and never hire us again.” 

However, evidence didn’t show a clear link between Newhard and Didisheim’s conduct and clients that stopped doing business with CriticalPoint, the arbitrator wrote. No damages were awarded for lost profits or reputational harm — two classically hard-to-win remedies, said Andrew Verstein, a professor of law at UCLA. 

“It’s hard to predict how businesses are going to do in the future,” Verstein said. “It’s hard to predict how they would have done if things had been different, so courts are pretty reluctant to award lost profits.”

On the other hand, estimating ill-gotten gains is easier and ordering to return them is most common, he said. 

“Disgorgement is the normal remedy for breaches of fiduciary duty,” Verstein said. “When an employee does something bad, the normal thing we do is try to take away all their profits.