For more than five years, the details of the ongoing dispute between co-founders Mark Hurley and private investor Howard Milstein over the sale of Fiduciary Network have been under wraps. But last month, a New York Supreme Court judge ordered the court records unsealed, and the advisory community can finally see how the dynamic between the partners-turned-public adversaries played out.
Attempts to reach Milstein, Barry Friedberg, appointed by Milstein to serve on the Fiduciary Network board, and Karl Heckenberg, currently CEO of Emigrant Partners and the Fiduciary Network, for comment were unsuccessful by press time.
According to Hurley’s attorney William A. Brewer III, the judge’s support of the arbitration details entering the public domain in itself was a victory. “That record confirms what our clients alleged all along: certain defendants were conspiring to subvert the sales process of Fiduciary Network and smear Hurley's personal and professional reputation,” Brewer said in a statement.
Hurley lauded the financial performance of FN during his tenure as CEO and after he was terminated in 2018. “I am proud of our track record, and believe our management team provided an enormous investment return to Mr. Milstein – achieving astronomical results in his equity investment in FN,” Hurley said. In the LLC agreement, it stated that Milstein's initial capital contribution was $75,000 and an expert witness said that investment was ultimately worth $600 million, or 8,000 times his investment.
However, no damages were awarded for legal reasons. Financially, the arbitration was a draw, including the assignation of court costs and fees, the unsealed documents showed. In the end, the arbitrators agreed with Hurley that Milstein and actors on his behalf had done what they could to suppress the sale price of Fiduciary Network (FN), but decided not to award damages.
The arbitrators said Milstein and his team acted with spite and engaged in a calculated process, using two industry publications to subvert the sales process while denigrating Hurley and his management team.
The case is still pending appeal in New York state court. “Our clients believe the arbitration panel misapplied Delaware law, to the extent it failed to award damages despite its having found ‘actionable wrongdoing’ on the part of one of the conspirators,” Brewer’s statement continued. “Our clients are exploring all options to hold defendants accountable.”
The battle included three separate arbitrations with the two co-founders, two holding companies and five named managers, but there were two facets to this case that all parties could agree on, the documents showed.
First, the LLC agreement that Hurley and real estate investor Milstein signed when they became partners in July 2006 was replaced with amendments three times, once in 2009, once in 2011 and finally in July 2016. It was that last version that provided the language against which all claims and counterclaims were evaluated. And the second facet was that the catalyst for the drawn-out arbitration brawl came in December 2016, when Hurley exercised his right to force a sale of FN.
In an industry where RIA consolidation is now an ongoing event, there was a time before the 2008 financial crisis when two firms were the leading investors in the space: Fiduciary Network and Focus Financial Partners. In that context, what Hurley (and three of his colleagues) and Milstein (through Emigrant Bank and EB Safe, an Emigrant company set up to take the majority stake in FN) wanted to do was innovative.