There is an interesting lawsuit brewing in Delaware Chancery Court, related to a Houston-based private equity and mezzanine investment firm called Capital Point Partners. The basic story appears to go like this:
Capital Point Partners is a Houston-based firm led by Alfred Jackson, who happens to be a former wide receiver for the Atlanta Falcons. Back in March, the firm sold the portfolio assets from its two funds to Princeton Capital Corp. (F.k.a. Regal One Corp.) (RONE), a publicly-traded business development company where Jackson serves as chairman. In a press release announcing the deal, Princeton Capital’s CEO Munish Sood said that it would “provide a larger asset base that is anticipated to enhance the company’s future growth.”
The trouble is that Capital Point Partners does not seem to have gotten permission from its limited partners for the transfer. Last month the LPs voted to boot Jackson and his colleagues, and instead installed a Massachusetts firm called Sema4 Inc. As general partner. One day later it filed suit in Delaware, asking for the asset transfer to be reversed.
The complaining LPs represent an 81.59% interest in the relevant funds, having contributed more than $66 million. They include public pensions in New Mexico, Seattle, Little Rock, Austin, New York City and Detroit.
Chancery Court already has upheld the GP swap, but has not yet ruled on the transaction reversal. We’re still waiting on Princeton Capital’s legal response, and calls left with Jackson and Princeton’s investor relations chief Jennifer Tanguy went unanswered.
The big question I want to ask them, of course, is why they made the original transfer (let alone without permission, allegedly). One argument could be that it helped secure liquidity/accelerate returns for Jackson and company. Another could be that it may have artificially extended — and, for a while — doubled Jackson’s management fees.
Either way, it hasn’t been too sweet a deal for limited partners, as Princeton Capital’s stock has dropped from a high of $2.70 per share just after the transaction, to just $0.51 per share as of Friday morning. It remains unclear why it took the LPs so long to file suit, or if they took any steps to block the original transaction.
Mark DiSalvo, president and CEO of Sema4, declined to comment when contacted via email.
It also is worth noting that this case involves several players from some notorious private equity pay-to-play scandals. Jackson in 2014 settled a kickback-related case related to the New Mexico State Investment Council, which is one of the LPs now suing in the CCP case. CCP’s website lists Ceasar Baez as its managing partner — the same Cesar Baez who was dismissed from his prior firm at the request of the California Public Employees’ Retirement System, due to alleged ties to crooked placement agents. Finally, one of the underlying limited partners in CCP is Aldus Equity, whose founder Saul Meyer in 2010 admitted to indirectly bribing public pension officials in order to secure investment contracts for Aldus.
