Lawsuit: 300% profit on $5M investment ‘apparently not enough for Rauner’
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A business associate of Gov. Bruce Rauner says he met twice with the governor in 2015, including once on the back porch of the governor’s mansion, to discuss the status of a business investment that now is the subject of a legal fight between the men.
That business deal allegedly allowed Rauner to turn a $15 million profit on a $5 million investment, which “apparently is not enough for Rauner,” according to a lawsuit filed by the former associate that contends the governor is seeking more.
Harreld “Kip” Kirkpatrick III’s account of his contacts with Rauner, contained in newly unsealed court records, raised questions about the “blind trust” arrangement in which the governor says he placed his vast wealth when he took office.
Under that arrangement, Rauner has stated he no longer has personal control over his assets to avoid potential conflicts of interest.
A spokeswoman for Rauner pushed back against the allegations Tuesday night.
“Governor Rauner disputes Mr. Kirkpatrick’s allegations, including Mr. Kirkpatrick’s characterizations of any conversations,” said spokeswoman Rachel Bold.
The governor’s lawyers plan to file their own unsealed court papers on Wednesday.
The business deal between Kirkpatrick and Rauner dates back before his election as governor, but their falling out over the allocation of a $67.5 million settlement agreement resulting from their investment has played out during Rauner’s term in office.
Kirkpatrick filed suit against Rauner in October, but Rauner’s lawyers sought to prevent the matter from being made public in Cook County Circuit Court. Asked about it at the time by reporters, the governor professed no knowledge of the court fight or the underlying dispute.
Circuit Judge David Atkins then ruled last week that the matter should no longer remain under seal, allowing Kirkpatrick’s attorneys, Dan K. Webb and William O’Neill, to refile their complaint on Tuesday.
The court filings shed new light on the business disagreement at the heart of Rauner’s legal battle with Kirkpatrick, but make only passing mention of the 2015 meetings between the men that already are becoming fodder for the 2018 elections.
Democrat J.B. Pritzker’s campaign accused Rauner of “allegedly conducting private business out of the governors’ mansion and then openly lying about it to the public.”
A spokesman for Rauner’s Republican primary opponent, state Rep. Jeanne Ives, responded in a similar vein: “Lying and screwing people out of their money is apparently a practice Bruce Rauner brought with him from his dealings in the private sector to his dealings as Governor.”
Kirkpatrick and Rauner invested together in Kirkpatrick Capital Partners Fund I, a limited partnership that acquired a 20 percent minority share in United Shore Financial Services, a privately-held Michigan-based mortgage lender.
Kirkpatrick had joined United Shore as CEO in 2011 for purposes, he contends, of growing the company to position it for a sale to a third party.
As part of his deal, Kirkpatrick negotiated a “transaction bonus,” entitling him to an escalating percentage of the proceeds from the sale of the business.
Instead, at the point Kirkpatrick tried to market United Shore for sale, he was replaced as CEO by the son of the company founder.
That led to Kirkpatrick and Kirkpatrick Capital bringing litigation against United Shore in Michigan, resulting in June 2016 in a $67.5 million settlement agreement that he maintains was intended to cover both the money owed the investor group and his transaction bonus.
Rauner received $20 million from the settlement, according to the court filings.
Court records do not make clear how much Kirkpatrick claimed as his own share, but Rauner apparently decided it was too much.
Lawyers for Rauner filed a demand for arbitration in the summer of 2017, arguing that Kirkpatrick and Kirkpatrick Capital breached the limited partnership agreement with investors in allocating the $67.5 million. The lawsuit from Kirkpatrick seeks a declaratory judgment from the court that the settlement agreement controls the allocation.
Kirkpatrick maintains he kept Rauner informed about the status of his settlement talks with United Shore, including during in-person meetings with Rauner at the governor’s mansion in Springfield on May 11, 2015, and at the Chicago Club on Sept. 15, 2015.
“At neither meeting did Rauner object to the proposed allocation of the settlement proceeds, nor the return on his investment he would receive,” his lawsuit states.
Kirkpatrick contends that neither of the other two investors in the deal, former Hearst Corporation CEO Victor Ganzi or ComPsych Corp. Chairman Richard Chaifetz, disputed the settlement allocation.