A North Carolina business court judge has dismissed a lawsuit from shareholders alleging leaders of an investment fund allowed an exchange of more than $300 million in diversified assets for "worthless" illiquid equity, finding the complaint did not allege either a material benefit or a substantial likelihood of liability as to the adviser.

Judge Julianna Theall Earp said in the order Friday the suit does not currently satisfy the derivative demand prerequisite.

"Plaintiffs have failed to meet a threshold requirement necessary for this court to have subject matter jurisdiction," Judge Earp said.

The suit was brought on behalf of Hatteras Master Fund LP against its directors and adviser Hatteras Investment Partners LP, and involves four "feeder" funds and a master fund. The four named shareholders and plaintiffs — Joseph Meyer, Henry G. Schwartz Jr., James M. Alland and Carol C. Collier — invest in three of the four feeder funds.

The master fund is directed by David B. Perkins, H. Alexander Holmes, Steve E. Moss, Gregory S. Sellers and Thomas Mann, according to the suit, and they are all named defendants. All the funds are controlled by Hatteras Investment Partners, which in turn is controlled by Perkins, the plaintiffs said.

According to the plaintiffs, the defendants caused the master fund to enter a transaction with The Beneficient Company Group LP, also known as "Ben," that led to a 98% drop in value of the master fund.

At a hearing in September, Corri A. Hopkins of Parker Poe Adams & Bernstein LLP, counsel for Perkins and Hatteras Investment Partners, said the shareholders did not fulfill pre-suit requirements under North Carolina and Delaware laws, like serving a demand on the fund's general partner before suing.

And the plaintiffs admitted they did not make a litigation demand on the limited partnership's general partner, Judge Earp noted in the order Friday.

They also did not adequately plead that the adviser received a material benefit from the Ben transaction that would have made the demand futile, or that the demand would be futile because the adviser faced a substantial likelihood of liability on their claim, according to the order.

When moving to dismiss the suit, the defendants had argued the plaintiffs only generally describe the terms of any purported agreements between Ben and Hatteras Investment Partners, and that the size of the transaction alone is not material to show demand futility.

Judge Earp agreed with the defendants on Friday.

"That the business opportunities Ben proposed to the Adviser would presumably involve large sums of money is insufficient to show materiality without facts to put those amounts in context," Judge Earp said.

The judge also said the plaintiffs failed to meet the "heavy" burden of showing that Hatteras Investment Partners displayed "willful misfeasance, gross negligence, bad faith, or reckless disregard of its duties."

"Because fiduciaries must take risks ... they are exposed to liability for breach of fiduciary duty only if their breach of the duty of care is extreme," Judge Earp said, citing the Delaware Chancery Court's 2009 decision In re Citigroup Inc. Shareholder Derivative Litigation .

In a July opinion in another suit against Hatteras Investment Partners in the North Carolina Business Court, Judge Matthew T. Houston declined to allow another investor to voluntarily dismiss its lawsuit against Hatteras Investment Partners and move it to Delaware because it failed to plead facts demonstrating a legitimate claim under Delaware law.

Hatteras Investment Partners was also named in a putative class action filed in Chancery Court in April 2024, in which stockholders in Hatteras-managed funds alleged breaches of fiduciary duty in conjunction with the Ben transaction. In August, A North Carolina Business Court judge declined to allow Hatteras Investment Partners to remove the case to Delaware federal court.

Representatives of the parties did not immediately respond to requests for comment Tuesday.

The four shareholders are represented by Paul D. Malmfeldt of Malmfeldt Law Group PC, and Matthew E. Lee, Jeremy R. Williams and Eric G. Steber of Lee Segui PLLC.

Perkins and Hatteras Investment Partners are represented by Corri A. Hopkins and Melanie Black Dubis of Parker Poe Adams & Bernstein LLP.

Holmes, Moss, Sellers and Mann are represented by Edward B. Davis and Joshua B. Durham of Bell Davis & Pitt PA, and Joshua L. Solomon and Phillip Rakhunov of Pollack Solomon Duffy LLP.

The Hatteras Master Fund LP is represented by Jennifer K. Van Zant, Greg Gaught, Clint S. Morse and Gabrielle E. Supak of Brooks Pierce McLendon Humphrey & Leonard LLP.

The case is Meyer v. Hatteras Investment Partners LP, case number 2024CVS27958, in the North Carolina Business Court.