Managers of a private equity firm accused by former members of mismanaging funds say their accusers are vindictive and have a “profound misunderstanding” about how the business worked.
Merrette Moore and William M. “Bill” Moore say in recent court filings that John Kane Jr. and Michael O’Donnell were “disgruntled former employees” intent on damaging the Moores’ reputation.
The Moores made those claims in briefs filed in state business court in response to a lawsuit Kane and O’Donnell filed in November. The lawsuit claims the Raleigh firm, Lookout Capital, “fleeced” its member investors through mismanagement and self-dealing.
The legal dispute pits the sons of prominent figures in the community against each other in an enterprise that recruited the children of well-connected Raleigh families. Kane, a director on the N.C. Ports Authority, is the son of the developer of North Hills and downtown Raleigh projects. Merrette Moore’s father Bill is an investment banker, board member and business school professor.
In a statement he issued in November, Merrette Moore said the accusations had been investigated by the company and found to be baseless. These new filings give a more complete description of the Moores’ point of view.
“This case is not about damages,” the Moores responded in a motion to dismiss the suit. “This case is motivated by Plaintiffs animus toward Defendants.”
The Moores contend in the motion that they had attempted to comply with Kane’s and O’Donnell’s demand for company information in August by providing nearly 2,000 pages of documents.
The Moores contend the lawsuit should be dismissed because it makes claims that are typically brought when there is an allegation of harm to a corporation not an individual. They are known as derivative claims, and entail direct complaints.
On Friday, Superior Court Judge Gregory McGuire gave Kane and O’Donnell until March 7 to respond to the defendants’ motion to dismiss. The judge also denied the defendants’ request to file certain records under seal. Both sides have agreed that some records will remain confidential.
The Moores say the plaintiffs don’t understand the business model for the investment firm. They say Lookout Capital’s purpose was to analyze potential investments for its subscriber members, not to make investments itself. Income from membership fees were used to fund research into those investments, they say.
In the filing, the defendants say Kane was brought on at Lookout in 2012 as an unpaid intern who had been referred to Merrette Moore by a mutual friend, although he didn’t have a background in private equity finance. Kane had decided to leave his unsuccessful yogurt franchise, according to the brief.
Later that year Kane became eligible to receive commissions for recruiting members, many of whom Merrette Moore says he referred to Kane to enlist. Kane earned an 80 percent commission on members’ subscription fee, and over the next five years Kane received more than $500,000 in commissions, according to the court filing.
But according to the motion, the relationship between Kane and Merrette Moore “quickly soured” over Kane’s demands to manage the limited liability through which Lookout Capital members were investing in a company, Race 13.1, that Kane had founded. Race 13.1 is now known as Capstone Event Group.
Kane and O’Donnell claimed in their original complaint that while he was still a manager at Lookout, Merrette Moore formed a new company, Tidewater in 2016, with his father’s consent. They contend that Tidewater was a conflict of interest.
Lookout was a “pledge fund” firm whose members made five-year investment commitments paid annually. In their motion, the Moores say Lookout Capital proved “unsustainable,” and that it lost half its investment capacity when the original members fulfilled their five-year commitments.
According to the Moores, Merrette Moore formed Tidewater, and brought some of the Lookout members with him, because he wanted a more traditional investment firm. Moore invited some Lookout members to participate in Tidewater’s investments. Kane and O’Donnell were not invited.