The family office of secretive billionaire Harald McPike has accused US gaming investor Jason Ader of fraudulently inducing it into backing his special purpose acquisition company because he was under pressure to return $16mn to his mother.
Rimu Capital alleges Ader pocketed the $25mn it had invested in the Spac to use for his “own personal purposes”, according to a filing made last month in the Southern District of New York. Ader’s mother had hired lawyers to help dispose of a $16mn stake in SpringOwl, her son’s investment firm, the filing states.
Ader faces a growing number of legal headaches from the ill-fated attempt in 2021 to merge his Spac, 26 Capital Acquisition Corporation, with a casino business in the Philippines owned by Japan’s Universal Entertainment in a deal that would have seen it list in New York at a $2.6bn valuation.
Once a gaming analyst on Wall Street, Ader shot to prominence in 2016 as an activist investor when he took on US media company Viacom and helped oust its chief executive.
McPike began his career as a blackjack player and once admitted in a deposition that he had been banned from about 20 casinos for card counting, but went on to amass an estimated $1bn fortune investing in financial markets. Based in the Bahamas, he is the largest shareholder in London-based Starling Bank, founded a decade ago to challenge Britain’s biggest lenders.
His family office first filed a lawsuit against Ader this year, alleging that he had misrepresented the investment in Capital 26 by failing to disclose that the shares Rimu had agreed to buy in the Spac were owned by Ader.
The creators of Spacs, known as sponsors, typically purchase stakes to align their interests with those of the investors they raise money from. Ader pocketed significant profits from the Rimu transaction as he only originally paid $7.5mn for his so-called founder’s shares, according to court filings.
The dispute between McPike and Ader has laid bare the underbelly of the 18-month Spac boom that catapulted hundreds of companies on to the stock market and enriched bankers but often left investors with heavy losses.
Spacs and their sponsors raise cash by listing on the stock market before then seeking a merger with a private company. The case also highlights how during the Spac frenzy that unfolded in the final throes of the US equity bull market sponsors were able to reap multimillion-dollar windfalls before even completing a merger.
“We firmly believe the claims against us are frivolous and without merit. Our stance on this issue is clear and unwavering,” Ader said in a statement to the Financial Times. “It’s important to note that Rimu is a sophisticated billionaire investor and hedge fund manager who fully understood the details and risks involved.”
The ties between Ader and McPike date back to at least 2018, when SpringOwl amassed a $100mn stake in Playtech, a UK company that provides software for the gambling industry. At the same time, SpringOwl agreed to oversee an investment McPike’s family office had also made in Playtech, according to the court filing.
Three years after the Playtech deal, Ader approached Rimu with another investment idea: his Spac.
Rimu alleged it only discovered that Ader had used $16mn of its investment to pay his mother thanks to disclosures made in a separate lawsuit Ader filed in Delaware earlier this year against Universal. The suit was intended to force the Japanese group to complete the merger two years after the Spac bubble had largely burst.
Universal had put the brakes on the deal after a group loyal to its founder and former chair, billionaire Kazuo Okada, had stormed the Manila casino in May last year as part of a dispute over who controls it.
The Delaware lawsuit also exposed an apparently secret agreement struck between Ader and Alex Eiseman, a hedge fund manager who Universal said was acting as an adviser to it on the proposed deal.
In July 2021, Eiseman, the founder of New York hedge fund Zama Capital, agreed to buy almost 60 per cent of Ader’s stake for $4.5mn, a price far below that paid by Rimu.
This month Travis Laster, the Delaware judge overseeing the case, ruled against Ader. The deal between Ader and Eiseman gave the latter a significant incentive to secure the best terms for the Spac rather than Universal and put Zama “in a position to work as a double agent”, Laster noted in his judgment.
The case also revealed that Eiseman had reached a similar agreement with a Spac backed by former New York Yankees star Alex Rodriguez, but the possibility of it merging with Universal vanished after the baseball player broke up with music star Jennifer Lopez.
According to Laster, “the additional value that his Spac could bring . . . was a concert by Lopez, so without that tie-in, Universal lost interest”.
Laster delivered a withering description of Eiseman, noting that “at bottom, he seems fundamentally amoral and willing to say anything that might be personal advantageous”.
In a statement to the FT, Eiseman said he was disappointed with the decision and that the proposed merger would be a “good deal” for both Universal and 26 Capital Acquisition.
“Unfortunately, both my relevance to and my role in the transaction were grossly mischaracterised by Universal. I’ve never acted or purported to act as its financial adviser. I’ve been sued by Universal in New York and will tell my side of the story there,” he added.
Ader told the FT: “Had the company asked me, and they had lots of legal advisers and a lot of smart people, if they’d just asked me, is Eiseman an investor [in the Spac]? I would have said yes.”
The court battle also showed the lengths Ader went to try to ensure the Spac deal happened, including allegedly backing a plan to enlist Philippine politicians to help wrest back control of the casino business from Universal’s founder.
Okada was ousted from Universal by its board in 2017 after company officials accused him of embezzling funds, allegations the tycoon has vigorously denied.
In May 2022, allies of Okada led a “platoon of police” to the Manila casino and “forcibly ejected” its management, according to the judgment from Laster. A month later, Universal’s executives, with the blessing of Ader and Eiseman, agreed what Laster described as a “dodgy bargain” to regain control of the casino from Okada and force the Spac deal through.
The plan failed but the country’s Department of Justice subsequently declared Okada’s takeover “illegal” and in September last year national police helped Universal take back control.
After losing the Delaware case, Ader said he intended to pursue monetary damages “vigorously” against Universal on behalf of investors in Capital 26, which has now liquidated. But the decision to sell his shares allowed him to walk away from the wreckage of the Spac boom with a windfall, according to court documents.
Source: Financial Times