Private Equity Chief Outran Bank Before Death, Suit Says

Frank Pearl, the founder of Washington-based private equity firm Perseus LLC, fraudulently moved assets to his wife and a trust in an effort to outrun creditors as he was dying of cancer, a bank said in a lawsuit.

Toronto-Dominion Bank, in a complaint filed yesterday in federal court in Washington, claimed Pearl thwarted its ability to collect on a $16.2 million debt by transferring more than $300 million of his interest in Perseus funds to a trust for the benefit of his wife. The bank also said he may have lied on credit agreements when he portrayed $33 million in real estate and $65 million of antiques and artwork as his property alone.

Two months before he died on May 4, Pearl restructured his loan with the Toronto-based bank, making the same claims about his ownership interests, according to the complaint.

“TD Bank believes and therefore avers that the actual purpose of the requested restructure was to remove TD Bank as a direct creditor of Perseus so that the Perseus Trust could operate Perseus free of any collection and enforcement efforts by TD Bank,” according to complaint naming Pearl’s widow as a defendant.

Pearl, 68, died from complications related to lung cancer.

He founded Perseus in 1995 and served on the board of directors of Perseus portfolio companies, including Perseus Books LLC, the largest independent publisher of nonfiction books, according to a statement by the firm announcing his death. Pearl was Perseus’s sole owner, according to the lawsuit.

Avis, Wesray

Before starting Perseus, Pearl was a principal and managing director of Wesray Capital Corp., where he was involved in supervising corporate acquisitions and divestures, according the firm’s statement. The companies he was responsible for companies that at the time included Avis Rent-A-Car and Western Auto Supply Co., as well as Wilson Sporting Goods Co., according to the statement.

Pearl, who practiced law in Washington from 1969 to 1983, also served on the boards of charitable and nonprofit groups including the John F. Kennedy Center for the Performing Arts and the Peterson Institute for International Economics. He was a member of the Council on Foreign Relations and served as trustee emeritus for the Brookings Institution, according to the statement.

A month his death, the loans Pearl had with TD Bank, the U.S. unit of Toronto-Dominion, defaulted, according to the complaint. It was then that TD Bank said it learned Pearl had created a trust in December to which he conveyed all his interests in Perseus, related companies, and his funds. The sole beneficiary was allegedly his wife, Geryl Pearl.

Wife’s Lawyer

“We are dismayed by TD Bank’s lawsuit less than 100 days after his tragic death,” Robert Cary, a lawyer for Geryl Pearl, said in an e-mailed statement. “Neither Mr. Pearl nor Mrs. Pearl did anything wrong. TD Bank’s lawsuit is meritless, and we intend to prove that in court.”

Frank Pearl was “one of Washington’s most respected businessmen,” was “extraordinarily generous to charitable causes” Cary said. He had “an unblemished reputation over four decades,” said Cary, a partner at Williams & Connolly LLP in Washington.

Thomas Richardson of Arnold & Porter LLP in Washington, who is listed in court records as the personal representative of Pearl’s probate case, didn’t immediately respond to e-mail and telephone messages seeking comment on the suit’s allegations.

Kenneth Socha, Perseus’s chairman, declined to comment on the lawsuit because neither the firm nor any Perseus employee is a defendant in the case.

‘Simple Contract’

“On the date of Frank Pearl’s death, the transfer of the assets to the Perseus Trust became so far perfected that a creditor on a simple contract could not acquire a judicial lien that would be superior to the interest of the trustees of the Perseus Trust,” according to the bank’s complaint.

The bank, which said it learned of the trust at a June 14 meeting at Arnold & Porter in Washington, said it doesn’t have a copy of the trust agreement or “specific information about its creation and funding.”

The bank was told by lawyers for Geryl Pearl at the June 14 meeting that the real estate and artwork Frank Pearl claimed sole ownership to was owned by both Pearl and his wife before his death, according to the lawsuit.

The original loan Pearl had with TD Bank was made in September 2010 and involved $17.5 million in credit lines to Perseus. In order to close on the loan, TD Bank “required the unconditional guaranty” of Pearl, who at the time held all membership interests in Perseus, according to the complaint.

New Statement

As part of the loan approval process, Pearl submitted a personal financial statement detailing his assets and liabilities as of Dec. 31, 2009, which showed he had assets in his own name worth more than $449 million, the lawsuit claims.

About three months after the loan was approved, Pearl, as required by the credit agreement, submitted a new financial statement showing that he had about $415 million assets in his own name at the end of 2010.

Pearl then asked TD Bank if he could restructure the original loan to create a holding company for Perseus and make that holding company the borrower, according to the complaint. His motive, he said, according to the complaint, was to avoid having to make public his financial statement under the 2010 Dodd-Frank Act that overhauled U.S. financial regulations.

“TD Bank at this time does not know if Frank Pearl would have been required to disclose his financial statement under the Dodd-Frank Act if the TD Bank loans were not restructured or whether this reason was mere pretext to camouflage Frank Pearl’s actual purpose for requesting the restructuring,” the bank said in the complaint.

Credit Agreement

In November, Pearl learned he had lung cancer and that unless “a very aggressive form of treatment was successful, he did not have long to live,” according to the complaint.

On March 12, Pearl signed a credit agreement for the $16.2 million restructured loan attesting that all the financial statements submitted to TD Bank were “correct and complete” and that there has been “no material adverse change in the assets, liabilities, financial condition, business” since the documents were submitted, according to a copy of the agreement filed with the complaint.

“On information and belief, Frank Pearl knew at the time he effected many of the transfers described in this complaint that he was afflicted by a fatal disease that left him only a short, finite time to live,” the bank alleges. “Frank Pearl concealed his condition and seriousness of this condition from TD Bank and, on information and belief, from other creditors.”

The case is TD Bank NA v. Pearl, 12-cv-01315, U.S. District Court, District of Columbia (Washington).

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