The long-simmering feud between Fidicuary Network (FN) founder and former CEO Mark Hurley and its largest investor, Emigrant Bank (EB) CEO Howard Milstein, is headed for court.
Last Friday, Hurley filed a lawsuit against EB, New York City real estate billionaire Milstein and five other EB principals alleging they sought to sabotage the sale of FN by tarnishing the reputation of Hurley and management so they could buy out them at bargain prices. Hurley is seeking a jury trial in County Court in Dallas, where FN was headquartered, and more than $150 million in damages.
On November 21, EB announced it had acquired Hurley’s 25 percent interest and replaced him as CEO with Karl Heckenberg. No price was disclosed.
The lawsuit claims that EB management hired private detectives to “tail” Hurley and discover damaging information about him during his divorce earlier this year in order to “derail” any sale. Ultimately, a court would deny EB’s attempt to include “confidential documents” relating to his divorce in investment banking materials describing FN’s financial conditions.
It also claims that in November 2017 Barry Friedberg, an EB director, submitted a “letter to the editor” of RIAbiz, an industry website, estimating that the value of FN was in the range of $70 million to $80 million, far less than it had been valued at six earlier. Friedberg publicly indicated his intent to replace FN management and named Heckenberg as a “CEO in waiting.”
At that time, several heads of FN portfolio firms sent letters to EB complaining about making their dispute public, arguing that the biggest challenge for RIA firms was recruiting new talent. A public airing of the feud, they claimed, would only make that task more difficult.
In his new role, Heckenberg is believed to be spending the last few weeks after Thanksgiving meeting with FN portfolio companies, many of whom had long relationships with Hurley.
"Mr. Hurley’s allegations are completely false and defamatory," an Emigrant Bank spokesperson told Financial Advisor. "His complaint is nothing more than a series of baseless – and at times bizarre – allegations, most of which have little to do with the transaction in question. We have no doubt the court will agree once all the facts are presented."
When FN was put up for sale this year, its former management charges that EB interposed a series of demands and parameters for banker selection that “dampened interest” from banks. “It also demanded that a series of false and defamatory allegations about the integrity of management be shown to prospective bankers and bidders” to discourage both bankers and potential acquirers.
EB’s goal was to portray the FN sale as a low-value, “distressed asset with problematic management rather than what it actually was, a fast-growing highly valuable company with widely respected management in a very attractive segment of the financial services industry.” The complaint noted that FN was valued by a third party at $160 million in 2011 when it was a much smaller concern. Though that valuation arguably was excessive, FN’s cash flow today is five times what it was seven years ago.