Franklin Says Lost-Shares Suit Followed Extortionate Offer

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Franklin Resources Inc. has a word for a $156 million demand by the heir of an early investor who says he was cheated out a 4,000-share bonus in 1973 -- extortion.

The money manager and its 82-year-old retired chairman, billionaire Charles Johnson, say a lawsuit filed by the heir in January is a “scam” aimed at publicly embarrassing them after his attorneys failed to extort a payout for a block of stock he claims went missing in a treacherous coverup.

Anthony Miele III contends the firm and Johnson dodged his family members for decades when they tried to collect on the shares pledged to his father for loaning the firm $100,000 while it was struggling in a bear market in the early 1970s. Miele said in the complaint he never even learned about the stock until 2012, by which time title to the shares had been illegally altered to “an unknown individual.”

Lawyers for Franklin are urging a San Francisco federal magistrate judge to sanction Miele’s attorneys for even bringing the lawsuit. His complaint omitted that after his father’s death, various members of his family were present to receive the share certificate in a 1974 meeting with multiple attorneys, and that Miele was paid $2 million by a family friend in 1990, “undoubtedly for signing over his Franklin shares,” according to Franklin’s court filing.

The judge on Wednesday scheduled a July 2 hearing on Franklin’s bid for dismissal of the case and the proposed sanctions. David Marek, a lawyer for Miele with Liddle Robinson LLP in New York, had no immediate comment on the case when reached Monday. He didn’t immediately respond to a follow-up phone call on Wednesday.

$900 Billion

Franklin, which operates the San Mateo, California-based Franklin and Templeton mutual funds, manages almost $900 billion in assets for clients in 150 countries and had $8.5 billion in revenue in 2014. Johnson, who inherited the business from his father in 1957 at age 24, is now worth $6.1 billion and is the principal owner of the San Francisco Giants.

The firm hasn’t always been so successful. The roots of the current dispute go back 42 years to when Miele’s father, the owner of a New Jersey waste and sludge company and an Italian restaurant in Orange called Stash’s, allegedly loaned Johnson $100,000 to help pay for the acquisition of another investment firm that helped carry Franklin through a bear market while it was coping with the loss of 35 percent of assets under management.

Johnson gave Miele’s father a block of stock, then worth $100,000, as a reward for the loan, and it was put in a trust for the baby son.

Miele lays blame on Franklin for initially failing over the years to deliver shareholder correspondence, which he says was consistently addressed to his deceased father for 15 years and got lost in the mail.

Sinister Turn

The narrative in the lawsuit takes a more sinister turn when Johnson, after learning that the unclaimed shares would be declared lost property by the state of New Jersey, allegedly enlisted help in locating Miele from the securities dealer whose firm had underwritten Franklin’s initial public offering in 1971.

That dealer, Eugene Mulvihill, had helped Johnson secure the 1973 loan from Miele’s father. In 1986, Mulvihill was permanently barred from the securities industry after pleading guilty to fraud and forgery, according to the complaint.

By 1991, the Bank of New York held $186,000 in uncashed dividend checks for the stock, which was held in the name of F.N. Wolf & Co., the successor to Mulvihill’s Mayflower Securities, according to the lawsuit. The Bank of New York’s offers to track down Miele were never taken up by Johnson and Franklin, even though they had Miele’s Social Security number since 1973, Miele said.

Miele learned of the forgotten shares only three years ago after Johnson met his sister and expressed hope that the children received the Franklin stock, according to the complaint.

‘Hit Man’

Miele says that when he initially contacted Mulvihill to inquire about the stock, Mulvihill spoke of “the money I gave you in 1990,” the source of which he had never told Miele about, according the complaint.

After further hurried phone conversations, Mulvihill finally told Miele that his uncle had cashed all the dividends and that if Miele investigated the matter, Mulvihill’s associate “would hire a Russian hit man to kill [Miele III] and your family,” according to the complaint.

Mulvihill died of a heart attack 10 days after that conversation at age 78, Miele said.

Miele contends that due to the negligence of Franklin and Johnson, he’s now entitled to 2.53 million Franklin shares, after splits, which he values at about $136 million. He’s also demanding $20 million for dividends he never collected.

Franklin’s Lawyer

Franklin’s lawyer, Joe Cotchett, said in his bid to dismiss the lawsuit that the shares never went missing. More than a year before filing the case, a lawyer for Miele contacted Franklin employees and disclosed that around 1990, Mulvihill had Miele sign paperwork and gave him $2 million, according to Cotchett’s filing. He said Miele’s lawyer also shared that Mulvihill died with an estate worth about $49 million.

Cotchett said that besides not mentioning the $2 million, the complaint filed in January omitted crucial paragraphs from a draft of the lawsuit shared with his firm in December that disprove Miele’s case.

Miele and his lawyers “filed this action in bad faith and only after their threats to embarrass defendants Charles Johnson and Franklin Resources, Inc. into paying an extortionate settlement were unsuccessful,” Cotchett wrote.

He said Miele either sold the shares and feels he didn’t get enough money or was hoodwinked into transferring them, and has opted to blame Franklin and Johnson.

“Plaintiff and his counsel cannot fabricate events and omit critical facts to try to state a claim,” Cotchett said.

The case is Miele III v. Johnson, 15-cv-00199, U.S. District Court, Northern District of California (San Francisco).

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