Everton FC Buyer Accused of Fraud, Double-Pledging Assets in Lawsuit

(Bloomberg) -- Lenders to 777 Partners accused it of fraud, claiming that the Miami-based investment firm borrowed against $350 million of assets that it didn’t own, didn’t exist or were already promised to someone else.

Josh Wander, co-founder of 777 Partners, doubled-pledged assets backing loans to the firm and admitted to fundamental breaches of agreements, according to the complaint filed late Friday in New York federal court. The allegations revolve around 777’s relationship with New York-based insurance company Advantage Capital Holdings LLC, known as A-Cap. 

Plaintiffs Leadenhall Capital Partners LLP and Leadenhall Life Insurance Linked Investments Fund Plc said that the two entities are so entangled that A-Cap had effectively blocked efforts by 777 and a related entity to restructure its loans with Leadenhall.

“Through these attempted restructuring negotiations, 777 Partners has admitted time and again that it does not control its own operations and ability to perform” under the lending agreement, London-based Leadenhall said in the lawsuit.

The plaintiffs, represented by New York law firm King & Spalding, are seeking unspecified damages and a court order barring 777 Partners from violating its obligations.

A representative for 777 Partners didn’t respond to requests for comment outside of normal business hours, while a representative for A-Cap said the claims made by Leadenhall are “sensational and unfounded.”

The claims represent “yet another desperate attempt by Leadenhall to elevate its collateral seniority and seek payment from A-Cap while undermining A-Cap policyholders,” the A-Cap representative said. “A-Cap, similar to Leadenhall Capital, serves as a lender to 777 - there are no ownership ties. The key distinction lies in the fact that A-Cap holds senior rights to collateral associated with 777.” 

“To induce Leadenhall to fund their operation, Wander, along with his group of alter ego entities, ‘pledged’ over $350 million in assets as collateral to Leadenhall, knowing all along that the assets either did not exist, were not actually owned by Wander’s entities, or had already been pledged to another lender,” according to the complaint.

The Miami-based fund’s finances have been thrust into the spotlight after it moved to take over UK football club Everton FC last year. The acquisition was held up by a Premier League owners’ and directors’ inquiry into 777’s funding, though the league has since said it was “minded” to approve the deal subject to a number of conditions.

But the bid for the Liverpool-based football club has since faltered. 777 recently sought the extension of a deadline to repay a £158 million ($198 million) stadium loan, and Everton has held talks with restructuring advisers as it risks tipping into administration.

“If these allegations are true, that would vindicate the Premier League’s caution in endorsing 777 and Josh Wander as fit and proper owners of Everton FC,” said Kieran Maguire, a football business expert at the University of Liverpool.

777 owns or has stakes in several football teams around the world and has a sprawling collection of businesses, including Australian budget airline Bonza, which in late April suspended operations amid talks over the company’s future. 

A-Cap and its chairman and chief executive officer, Kenneth King, are also named as defendants in the lawsuit. A-Cap, the lawsuit alleges, has funded much of 777’s investments through loans and a complex reinsurance arrangement.

By the end of 2023, Leadenhall claims, A-Cap was owed more than $2.2 billion by entities affiliated with 777, an amount that’s more than double what’s been cited in previous news reports.

During conference calls in the spring of 2023, Leadenhall says that Wander disclosed that A-Cap had a first-priority “all asset lien” over all of 777’s assets.

Anonymous Tip

Leadenhall says it first grew concerned over the assets backing its loans when the London-based investment manager received an anonymous tip in 2022 that the assets didn’t exist or had been pledged to another lender. “You are at great risk... your investment is unsecured,” the tipster said, according to the lawsuit.

Leadenhall’s lawsuit revolves around a credit facility that its entities made to subsidiaries of 777 Partners and 600 Partners, a firm led by Josh Wander’s co-founder, Steven Pasko. The borrowers were required to secure it with collateral that was “free and clear” of any other interests, according to the complaint.

By 2023, Leadenhall said it had learned that 1,600 assets worth about $185 million that had been pledged to it by 777 Partners had also been pledged to a third-party lender named Credigy. When confronted, the lawsuit alleges, Wander admitted to the breach and attributed it to a “recording glitch.”

A-Cap

To prevent a lawsuit, A-Cap offered Leadenhall a fourth-priority position on assets of a 777 holding company, which Leadenhall declined, according to the complaint.

An insider revealed “an express agreement with 777 Partners which granted A-Cap the right to control all facets of 777 Partners’ operations,” Leadenhall alleges in the complaint. The insider also alleged that 777 had forged financial statements to cover up the collateral issue, according to the complaint. 

A-Cap prevented 777 Partners from committing to repay the obligations owed to Leadenhall and Wander allegedly admitted that A-Cap control their operations. 

“They [A-CAP] control what we sign because they have the power of the purse right now, and we have to keep the organization going and operating so we can solve all of our problems and deal with all of our obligations,” the lawsuit cites Wander as saying. “And they are the ones that are doing that.”

The case is Leadenhall Capital Partners LLP v. Wander, 24-cv-03453, US District Court, Southern District of New York (Manhattan).

(Adds comment from A-Cap in sixth and seventh paragraphs.)

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