by Privcap
December 8, 2015

‘Messy Divorce’ for Amstar and Billionaire Founder

Amstar Advisers, its parent company Amstar Group, and the founder of the Amstar brand—the world’s 690th richest man, Otto Happel—are suing one another amid a bitter corporate divorce and allegations of slander, breach of contract, and fiduciary duties.

Amstar Advisers, its parent company Amstar Group, and the family office founder behind the Amstar brand are suing one another in what has been billed as a “messy and contentious corporate divorce.”

In a complex series of lawsuits among Amstar Advisers, Amstar Group, chief executive Gabe Finke, and Otto Happel—the founder of the Amstar entities and the world’s 690th richest man—the two Amstar entities and Finke have filed suits for damages amid allegations of slander, and breach of contract, and fiduciary duties. All sides are demanding a jury trial.

The lawsuits between Amstar Advisers and Amstar Group—the company founded by Happel in 1987 to make U.S. real estate investments on his family’s behalf and run by Finke since 2003—allegedly stem from the termination of Finke as chief executive of Amstar Group by Happel and bring to light important trends facing alternative asset managers, not least those relating to fees, key-man clauses, and the removal of general partners.

Rob Toomey, Amstar Advisers

According to the lawsuits filed by Finke and Amstar Advisers, the relationship between him and Happel—who’s worth an estimated $2.6B after turning his father’s dust-removal business into a global thermal-engineering empire—had deteriorated to the point where the billionaire was “increasingly bitter and competitive” towards “Amstar Advisers and Finke, in particular.”

On October 21, while Finke was on a business trip to Poland, Happel allegedly held a meeting with staff to announce Finke’s termination as CEO of Amstar Group, the parent company of Amstar Advisers, and the splitting of the two entities. Happel is alleged to have accused Finke at the meeting of misappropriating corporate assets and exercising poor professional judgment.

Meanwhile, one of the central claims in Amstar Group’s lawsuit is the accusation that Finke “shifted” expenses from Amstar Group to loss-making Amstar Advisers through the introduction of an advisory agreement that was “proposed and negotiated by defendant Finke and executed by entities that he control[led].”

That advisory agreement, called the sub-advisory agreement in the lawsuits, carried an “excessive 2.4 percent fee generating $7.8M in fees annually for Amstar Advisers.” The agreement was signed in June 2015 and, when applied retroactively to January 2015, helped eliminate Amstar Advisers’ $1.4M first-quarter deficit, according to Amstar Group.

The claims and counterclaims are just some of the wide-ranging accusations in the lawsuits that also include the invalid removal of Amstar Advisers as the GP to two Amstar real estate funds targeting the U.S. and emerging Europe; the alleged poaching by Amstar Advisers of nine Amstar Group employees; Amstar Group allegedly preventing Amstar Advisers’ staff from accessing bank accounts and investment documents following Finke’s removal; the alleged firing of five Amstar Group staff who provided “critical” functions for Amstar Advisers following Finke’s removal; allegedly forcing Amstar Advisers to move from its shared office space with Amstar Group; and Amstar Group allegedly wanting to “bury” Amstar Advisers and prevent them from making payroll in November 2015.

With calls for a jury trial on both sides and allegations of breach of contracts, breach of fiduciary duties, intentional interference in contractual relations, slander, and requests for permanent injunctions, the “case is part of a messy and contentious corporate divorce,” according to the Amstar Advisers’ lawsuit.

In an emailed statement Amstar Group says Finke was removed as CEO of the parent company, Amstar Group, “when it became apparent that his priorities differed from those of the owners”. In the statement, Amstar Group also denied it “interfered” with Amstar Advisers bank accounts, rejected claims that the parent group wanted to “bury” its affiliate and that it laid off five employees after they told the firm they “had signed employment agreements with Amstar Advisers and intended to leave Amstar Group”.

Repeated requests for comment from Amstar Advisers were unanswered.

However, in an interview with PrivcapRE about the splitting of Amstar Group and Amstar Advisers—and before the lawsuits were uncovered—Amstar Advisers’ managing director, Rob Toomey, said the breakup had been “amicable” and was prompted by different “objectives of the various stakeholders.”

“The [objectives] are different now,” Toomey said in the interview on Nov. 16. “For Amstar Advisers, there is no change. We are the same team, we have the same strategy, and we have less distraction, as we are now just focused on value-added and opportunistic opportunities [exclusively] in the U.S. across all the property sectors.”

He also added that LPs and consultants had been “very supportive” of the move. “What they like hearing is that it’s the same team, that there is less distraction from international [investments], that there’s more focus on the U.S., and that we have chosen to continue to align ourselves with institutional investors,” Toomey said in the Nov. 16 interview.

Amstar Group, which is now led by former Black Walnut Capital managing principal Joseph Zuber, was originally formed in 1987 to manage the real estate allocation of Happel and expanded its remit to raise commingled funds for U.S. and European emerging market investments in countries such as Poland, Ukraine, Turkey, and Russia.

Amstar Advisers was founded in December 2010 by Finke when Happel began reducing “the level of real estate investments” by Amstar entities, according to the lawsuits. It has since raised two $200M discretionary joint ventures with San Diego County Employees Retirement Association and Oregon Public Employees Retirement Fund. SDCERA declined to comment; OPERF did not return requests for comment.

The lawsuits are set to be heard in Denver County District Court through December and January, 2016.

Amstar Advisers, its parent company Amstar Group, and the family office founder behind the Amstar brand are suing one another in what has been billed as a “messy and contentious corporate divorce.”

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