© 2014 The Texas Lawbook.
By Jeff Bounds
Staff Writer for The Texas Lawbook
(April 24) – A Dallas private equity fund is taking officials of a Louisiana company to task over allegations that they secretly set up a “shell” company to funnel money out of the business when the fund owned a piece of that company, court records show.
The North Texas Opportunity Fund LP alleges in a petition filed April 9 in state district court in Dallas that officials of Hammerman & Gainer International Inc. surreptitiously set up the shell business partly so they could enrich themselves. Hammerman & Gainer previously was based in Irving, and shifted its headquarters to New Orleans in late 2008, court documents say.
Additionally, the petition alleges, Hammerman & Gainer officials wanted to reduce the value of their company in anticipation of buying back the private equity fund’s 3 million preferred shares, for which it paid a total of $3 million between 2004 and 2005.
“The fund was alerted by government authorities that Hammerman & Gainer and its related entities and principals were being investigated and hid revenue and profits from the fund. We believe they did hide revenue and profits, and we intend to aggressively pursue all of our claims,” said Arthur Hollingsworth, a partner at the fund, which has in excess of $25 million in capital under management.
The fund previously sued the defendants over this same set of issues in 2012. North Texas Opportunity and the defendants agreed to postpone that litigation because of an on-going criminal investigation by the Internal Revenue Service, court documents show.
North Texas Opportunity officials said in their petition this week that they received a grand jury subpoena from the IRS in December 2010. That subpoena required the fund to produce documents related to its investment in Hammerman & Gainer, along with documents concerning that company’s operations and revenue, court records say. All told, the fund produced a total of just fewer than 2,000 pages of records, court records say.
“Upon discussing the subpoena with IRS agents, (the fund) discovered that the IRS was investigating (Hammerman & Gainer’s) use of related-party transactions to hide revenue and profits,” the lawsuit says.
In February 2011, in turn, IRS officials faxed North Texas Opportunity officials a copy of contract and related papers showing financial ties between the alleged shell company, called Principal Resource Group LLC, and a subsidiary of Hammerman & Gainer, the lawsuit alleges. That was when the fund first learned of the arrangement through which the defendants diverted revenue away from Hammerman & Gainer and the fund “to themselves,” the lawsuit alleges.
In addition to Hammerman & Gainer – which, among other things, provides insurance claims services – other defendants include:
· Three Louisiana residents affiliated with that business: Lawrence Pratt, Larry Oney and Christopher Oney;
· The Hammerman & Gainer subsidiary that allegedly had ties to the shell company, HGI Catastrophe Services LLC;
· The purported shell company, Principal Resource Group.
The status of the IRS probe is unknown.
A search of federal court records showed no indication of any public convictions, indictments or plea agreements relating to any of the individuals or companies whom North Texas Opportunity is suing. An IRS spokesman said federal disclosure laws prevent the agency from discussing matters such as investigations.
North Texas Opportunity has retained Alex Brauer and Ben Stewart of the Dallas litigation boutique Bailey Brauer to represent it in the case. The defendants have opted for Akin Gump Strauss Hauer & Feld LLP. Attorneys from both firms declined to comment on the case.
However, in an April 2012 filing following the original lawsuit’s removal to federal court, the defendants denied wrongdoing. They attempted to get parts or all of the plaintiff’s case thrown out on various grounds, and promised they would offer a “very different story” from what North Texas Opportunity presented in the event the defendants had to fight the matter in court.
It’s not clear what the defense’s version of the case would have looked like, because the two sides agreed to postpone it while the IRS investigation was going on, court records say.
Hammerman & Gainer hadn’t filed responsive pleadings in the latest version of the case as of Wednesday.
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