Red Hat's former CEO hit with suit

Szulik is accused of a tax scheme by a man he named in his own suit over investments.

Staff WriterJanuary 27, 2011 

A Los Angeles investor has sued Matthew Szulik, the former chairman and CEO of Red Hat, alleging that he received millions from illegal security sales as part of an elaborate tax-evasion scheme.

The suit, filed by Jason Galanis in federal court in Massachusetts, was described by Szulik as "utter nonsense" in a statement released through his lawyer.

Szulik said Galanis is attempting to divert attention from a lawsuit that his own family filed in federal court in North Carolina last month.

That suit, which has been referred to mediation, accused the Szulik family's former financial advisers of losing $60 million through improper investments and fraud.

"The purported tax evasion scheme Galanis and his attorneys alleged against me is utter nonsense," Szulik said. "No one would scheme to lose $60 million in order to deduct some losses on his taxes; any rational person would rather earn a profit and keep most of that profit after paying taxes."

Szulik stepped down as CEO of Raleigh software company Red Hat in 2008, citing family health problems. He stayed on as chairman, resigning that post in August. He lives in Raleigh.

The Galanis lawsuit says Szulik has a personal net worth of more than $250 million.

The lawsuit is the latest twist in the very public breakup of Szulik and James Tagliaferri, a longtime friend and business associate who managed some of the family's money through his firm TAG Virgin Islands.

Brothers Jason and Jared Galanis are named in Szulik's suit, which says that companies tied to them have received more than $4 million of Szulik family money from TAG.

Galanis' lawsuit alleges a scheme in which Szulik claimed that the investments made by TAG are worthless. Those losses would offset the taxes Szulik owes on more than $75 million in gains he made last year by selling Red Hat stock options, the suit claims.

Jason Galanis and his attorney could not be reached for comment on Wednesday.

The suit says Szulik pressured his investment advisers to get him out of investments that could not be easily sold. It alleges Szulik received $30 million from Galanis or companies owned by Galanis in return for the unmarketable securities.

The suit says Szulik then claimed millions of dollars in losses to reduce his tax liability. It also accuses him of making "misleading and disparaging statements" about Galanis in an effort to scuttle proposed mergers involving companies he had invested in.

The goal, the suit alleges, was to reduce the value of the investments to avoid taxes.

Others named

Galanis' suit names three other defendants: Scott Hintz, an employee of Net Five Holdings, and Keith Dalrymple and his company Dalrymple Finance.

Dalrymple, with the assistance or knowledge of Szulik or his agents, is accused of being a part of an illegal scheme to manipulate the stock price of a financial company that was in discussions to merge with a firm that Szulik had an equity stake in.

Szulik said in his statement that he does not know and has never communicated with Hintz, Dalrymple or anyone involved with Dalrymple Finance.

david.bracken@newsobserver.com or 919-829-4548

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