Ex-Charterhouse Executive Alleges Malpractice in Share Dispute

A former executive at Charterhouse Capital Partners LLP said he suspected the private equity firm of malpractice while his former colleagues accused him of blackmail as a trial over the value of his stake began.

The shareholders in Britain’s oldest buyout firm tried to cheat Geoff Arbuthnott out of his stake for 5 percent of its real value, he said in court documents made available today in London on the first day of trial in the case. He was offered about 1.4 million pounds ($2.3 million) in 2011, when his stake was actually worth about 27 million pounds, he said.

“Price is the key” and whether the sum offered to Arbuthnott for his shares was fair, not the allegations of improper conduct made by both sides, his lawyer, David Chivers, said at the hearing.

Arbuthnott, who had worked at the firm for more than 20 years when he resigned in 2008 and remained a shareholder, said he suspected the private equity firm of wrongdoing, including “pervasive malpractice, primarily in the form of secret access to the senior management of acquisition targets.” He claims to have raised concerns internally in 2006 and 2008.

Charterhouse’s other shareholders said in court documents the “spurious” claims had been investigated by lawyers who found minor breaches but no dishonesty or improper gains that needed to be reported to regulators. Its chairman, James Gordon Bonnyman, and 16 other shareholders said Arbuthnott tried to blackmail them into buying his shares at an inflated price.

‘Increasingly Disengaged’

Charterhouse, Britain’s oldest buyout firm, manages about 8 billion euros ($11 billion) and more than doubled investors’ pledges under Bonnyman’s leadership between 1990 and 2010. The firm began restructuring its ownership in 2010 to reflect the arrival of new investment managers and the retirement of members.

Arbuthnott had become “increasingly disengaged from the business” and hadn’t completed a profitable transaction since 1996, Charterhouse’s other shareholders said in court papers. The restructuring was intended to give active managers a bigger stake in its success and reduce the shareholding of retired members, the firm said.

Arbuthnott said he raised concerns about the acquisition of several companies, including PHS Group Plc and Ista International GmbH. Charterhouse’s investigation uncovered problems which prompted the firm to change its policies, though they weren’t serious enough to report to regulators, he said in court papers.

Charterhouse was formed in a management buyout from HSBC Holdings Plc in 2001. Its Fund VII generated carried interest, to be shared among executives, of about 353 million pounds between August 2007 and October 2010, Arbuthnott said in court documents. Carried interest is the share of a fund’s profits that private equity partners receive as compensation.

Arbuthnott is scheduled to testify in the case on Jan. 27.

The case is: In the matter of Charterhouse Capital Ltd., Between Arbuthnott v Bonnyman & ors, case no. 12-3290, U.K. High Court of Justice, Chancery Division.

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