Jan. 24 (Bloomberg) -- John Gorman IV, a Texas junk-bond salesman, is fighting for control of the brokerage he co-founded against executives who claim he wasted the firm’s money on escorts and private jets.
Gorman, 53, who denies the spending allegations, is seeking to have a Delaware court install his slate of directors for the parent company of Austin-based Tejas Securities Group Inc. The current directors said in a court filing that Gorman is trying to “regain control of the piggy bank.”
The sides have exchanged accusations of inappropriate spending, improper board appointments and document theft, as they struggle for Tejas, a distressed-debt broker with about $20 million a year in revenue. After arguments today in Delaware Chancery Court in Dover, Judge John Noble said he’d rule later.
“I’ve invested $15 million in capital in this firm,” Gorman said in a phone interview. “I never took a salary as compensation. Never got a dividend.”
Tejas, which has about 50 employees in Austin and New York, is operating as usual during a “tumultuous time,” Robert Halder, one of the current directors, said in a phone interview. Halder, who joined Tejas in 2002, declined to discuss the case.
Gorman said in the interview that he’s donated millions of dollars to private schools and charity wine auctions and helped the city of Austin expand its hiking and biking trail. He said he hosted fundraisers for then-Senator Barack Obama in Austin in 2005 and for Texas Governor Rick Perry. He said he breeds exotic animals such as oryx and wildebeest at his R Bar C ranch outside the city.
The dispute hinges on $8.5 million the brokerage raised in 2011. Halder and other investors say Gorman’s trading losses and extravagant spending forced the firm to recapitalize.
Halder and other investors in Westech Capital Corp., the holding company for Tejas, said in court filings that they have the power to nominate a majority of directors under terms of the 2011 investment agreement. Gorman counters that as majority shareholder, he should control the board.
The disagreement escalated after Gorman resigned from the board in June, directors including Halder said last month in a court filing. They said Gorman began a campaign to replace Westech’s directors with his “cronies,” according to court filings. Gorman said in a September press release that the current board was wasting funds on “unauthorized bonuses” and “excessive attorneys’ fees.”
When Gorman called for a meeting of a new board at Tejas’s Austin office in August, Halder and the other current directors locked him out of the building, Gorman said in a Dec. 10 filing.
A briefcase belonging to Halder and confidential documents were stolen from Tejas’s New York office before the annual shareholders meeting in September, Westech Chief Executive Officer Gary Salamone said in an October court filing. Salamone said he saw footage from a security camera showing Gorman arriving on the floor without a briefcase and returning to the elevator with one.
Michael Maimone, a lawyer for Halder and the other directors, said today in court that Gorman hired a private investigator to follow Halder.
A review found Gorman misused company funds, Halder and the current directors said in the December filing. Cash was spent, “at least in part, on escort services,” they said in the filing, adding that Gorman chartered private jets “without any business purpose.”
Gorman also shifted trading losses from his personal account to Tejas Securities, Halder and the other directors said. Those claims are “categorically baseless,” said Michael Rennock, one of Gorman’s lawyers at Steptoe & Johnson LLP.
Westech’s co-founder said he never took a salary at Tejas. Maimone, a managing shareholder at Greenberg Traurig LLP in Wilmington, Delaware, said Gorman received $25 million from 2005 to 2011 while the brokerage was losing money.
Gorman, who said he helped found Tejas Securities in 1994, said the current directors are misreading the voting-rights agreement signed as part of the capital infusion. He says the pact gives him power to elect a majority of directors because he has voting control of 54 percent of shares.
Shareholders “overwhelmingly voted to elect” his slate of board candidates in a September proxy contest and an independent review showed his candidates won by more than 2 million votes, Gorman said.
The directors’ contention that Gorman was willing to give up control of Westech as part of the recapitalization “is a complete fantasy,” Stephen Brauerman, the trader’s lawyer and a director at Bayard PA in Wilmington, told Noble at today’s hearing.
The case is In RE Westech Capital Corp, CA No. 8845, Delaware Chancery Court (Dover).