A “rising star” hired to help start a Dallas private equity firm because of his ties to an investment bank was removed from the firm by his male partner, according to a lawsuit filed by co-founder Sarah Bradley. He is said to be locked out.
The complaint alleges that Kainos Capital was turned into a “frat house” by its partners who defrauded them of 25% ownership in a company that manages $1.3 billion in assets.
In 2012, company co-founder Bradley asked the Delaware Court of Chancery to restore his 25% ownership interest. She also wants money that she claims her partner withheld from her and paid to them.
According to the complaint, Kainos' first two funds generated more than $25 million in annual management and trading fees, likely totaling millions of dollars. Kainos has invested in more than a dozen companies, including well-known brands such as Ghirardelli, SlimFast, and Swift & Co.
Bradley's lawsuit names co-founders and partners Andrew Rosen and Robert Sperry, as well as chief financial officer David Nickel. This is a rare glimpse into the money-driven world of private equity, where partnership disputes are typically resolved privately.
According to the complaint, Mr. Rosen took over Kainos after Mr. Bradley left Dallas-based Hicks, Muse, Tate & Furst following “a scandal involving a state pension fund and significant investment losses.” Mr. Bradley was hired to help launch the company. He was headmaster at Hicks Mews. Sperry and Nickell previously worked at Hicks Muse, which he renamed to HM Capital Partners in 2006.
In a prepared statement, Kainos called the lawsuit “regrettable allegations” and said Bradley's “accusations are without merit and the allegations are false.”
“This is a financial dispute over something that occurred nearly three years ago, and Ms. Bradley was well aware that her ownership interest had been reduced,” the emailed statement said. has been written. dallas morning news. The firm's partners said they intend to “vigorously defend this matter.”
Ms. Bradley, who donated $1.5 million of her own money to start the company, said Ms. Rosen knows she is the primary breadwinner for her family of six and that her need to protect her family's financial health is He said he used sex to ensure that his control over Kainos was unquestionable. .
The suit says the partners created a culture at Kainos that encouraged binge drinking in the name of “being part of the team.” According to the lawsuit, an employee went missing at one of the retreats and was “found in a dangerous condition, intoxicated and passed out near the on-site pool.”
Bradley also said he was groped by a drunk Kainos executive at a retreat in 2014. When she questioned her heavy drinking, Rosen told her to “love it, learn from it, or quit,” according to her complaint.
The drinking culture continued, and at a retreat in 2016, a Kainos employee became unresponsive and a paramedic was needed, according to the lawsuit.
Bradley has 20 years of investment banking experience, previously working at Deutsche Bank and Citigroup, working with the Kainos team and other private equity firms on transactions in the food and consumer products industry. .
For the past two years, she has been named one of the most influential women in mid-market M&A by trade publications. Mergers and Acquisitions. In 2015, she was recognized as one of the Top 15 Women to Watch in Private Equity.
Bradley's lawsuit says he was able to secure investment to get the company off the ground when Kainos' initial funding failed. Having attracted more than $475 million in investment, the company began to see early market success. By 2016, Bradley said, he helped raise the company's second round of funding, raising $895 million, nearly double the first.
From then on, Ms. Bradley claims, the partners began to exclude her from decision-making and cut off her access to financial records. At the same time, the complaint said, the culture and atmosphere at Kainos changed to one that included “enforcement of excessive alcohol consumption and general debauchery, as well as shaming and coercion if anyone attempted to resist.”
According to the complaint, Mr. Rosen, Mr. Sperry and Mr. Nickell “concocted a plan” to convert the company from a Delaware limited liability company to a limited partnership, while simultaneously reducing Mr. Bradley's ownership to zero. Her lawsuit alleges that Mr. Nickel told her the conversion was for tax purposes only and made her sign it.
The conversion stripped her of her property rights and gave Rosen and Sperry control of the release, according to the complaint. Instead, her 25 percent ownership interest in the company was converted into her 12 percent revocable profit sharing interest in Kainos Capital LP.
The interest was subject to the “unilateral whims” of Mr. Rosen and Mr. Sperry, according to the complaint. In 2017, the partners reduced her 12% profit-sharing interest to 7.48% without notifying her, according to her complaint.
Mr. Rosen and Mr. Sperry told Mr. Bradley in late 2018 that he should start looking for investors for Mr. Kainos' third discovery, $1.5 billion, according to the complaint. Bradley's complaint says she was told the fund would have to close in the first half of this year and that the interest rate would be further reduced to 5%.
She then obtained enough documentation to piece together how she was misled, the complaint says.
Here is a link to the court filing.
