The family office for secretive billionaire Harald McPike accused US gaming investor Jason Ader, of fraudulently inducing them to back his special purpose acquisitions company because he felt under pressure to refund $16mn of his mother’s money.
Rimu Capital claims that Ader used the $25mn they invested in Spac for “personal purposes”, as stated in a document filed last month with the Southern District Court of New York. Ader’s mom hired lawyers to dispose of a $16mn share in SpringOwl Investments, her sons investment company, according to the filing.
Ader is facing a growing list of legal headaches as a result of the failed attempt to merge Spac, 26 Capital Acquisition Corporation with a casino in the Philippines that was owned by Japan’s Universal Entertainment. The deal would have allowed it to be listed in New York for $2.6bn.
Ader, a former Wall Street gaming analyst, shot to fame in 2016 when he became an activist investor and took on US media giant Viacom. He helped remove its CEO.
McPike started his career playing blackjack and admitted once in a deposition he was banned from around 20 casinos for card-counting. He went on to make an estimated $1bn in the financial markets. He is based in the Bahamas and is the biggest shareholder of London-based Starling Bank. Starling Bank was founded in London a decade ago in order to compete with Britain’s largest lenders.
Ader’s family office filed the first lawsuit against him this year. It claimed that Ader had misrepresented his investment in Capital 26 and failed to disclose the fact that Ader owned the shares Rimu agreed to purchase in the Spac. 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 spac boom of 18 months, which pushed hundreds of companies onto the stock exchange and enriched banks but left many investors with large losses, has been exposed by the dispute between McPike vs Ader.
Spacs, and their sponsors, raise money by listing at the stock exchange before attempting to merge with a private firm. This case shows how sponsors of Spacs were able, during the spac frenzy in the final days of the US equity bull-market, to make multimillion dollar profits before even merging.
“We are convinced that the allegations against us have no merit and are frivolous.” Ader stated in a press release that “our stance is clear and unwavering” on the issue. It’s important that Rimu, a billionaire hedge fund manager and sophisticated investor, fully understands the risks and details involved.
Ader’s relationship with McPike dates back at least to 2018, when SpringOwl acquired a $100mn stake (in Playtech), a UK software provider for the gambling sector. According to a court filing, SpringOwl also agreed to supervise an investment McPike’s family office made in Playtech.
Ader approached Rimu three years after Playtech’s deal with a new investment idea. His Spac.
Rimu claimed that it discovered Ader’s use of $16mn from its investment for his mother only after disclosures were made in a separate suit Ader filed earlier this year in Delaware against Universal. The lawsuit was meant to force the Japanese company to complete the merger after two years, when the Spac bubble was largely bursting.
Universal put a halt to the deal in May of last year after a group loyal its former chairman, billionaire Kazuo OKada, stormed Manila’s casino as part a dispute about who controls it.
The Delaware lawsuit revealed an allegedly secret agreement between Ader, who was Universal’s adviser on the proposed deal, and Alex Eiseman.
Eiseman is the founder of New York’s hedge fund Zama Capital. He has agreed to purchase almost 60% of Ader’s stake in July 2021 for $4.5mn. This price is far lower than that paid by Rimu.
Travis Laster, Delaware’s judge in charge of the case, decided against Ader this month. Laster’s judgment noted that the deal between Ader, Eiseman and Zama gave Eiseman a strong incentive to negotiate the best possible terms for Spac and not Universal. Zama was also “in a position” to act as a double-agent.
In the case, it was revealed that Eiseman also had a similar deal with a Spac backed up by the former New York Yankees player Alex Rodriguez. However, the possibility of merging the two companies with Universal disappeared after the baseballer broke up with Jennifer Lopez.
Laster said, “the added value that his Spac can bring. . . Universal lost interest because there was no tie-in with Lopez’s concert”.
Laster gave a scathing description of Eiseman. He said that, “at his core, he appears fundamentally amoral, and is willing to say whatever might be personally advantageous”.
Eiseman, in a statement said that he was disappointed by the decision. He also stated that the merger proposed would be “a good deal” for Universal and 26 Capital. Universal has grossly mischaracterized my contribution to the transaction and my role. I have never claimed to be its financial advisor or acted in that capacity. Universal has sued me in New York, and I will give my side of the tale there,” he said.
Ader said: “Had they asked me – and they had a lot legal advisers, smart people – if they just asked me ‘is Eiseman an Investor [in the Spac]?” I would have answered yes.”
The court case also revealed the lengths Ader would go to in order to make sure the Spac deal was completed, including allegedly supporting a plan that involved enlisting Philippine politicians to assist with regaining control of Universal’s casino business.
Okada, the Japanese tycoon, was fired from Universal in 2017 by its board after officials accused him to embezzle funds. The tycoon vigorously denies these allegations.
Laster’s judgment states that Okada allies led a “platoon” of police to the Manila Casino in May 2022 and “forcefully ejected its management”. Ader and Eiseman endorsed a deal that Laster called “dodgy” by Universal executives to take back control of the Manila casino from Okada.
Although the plan failed, the Department of Justice of Japan declared Okada’s takeover as “illegal”. In September of last year, national police assisted Universal in regaining control.
Ader stated that after losing the Delaware case he would pursue monetary damages against Universal “vigorously” on behalf of Capital 26 investors, which is now liquidated. According to court documents, Ader’s decision to sell shares enabled him to walk away with a windfall from the wreckage caused by the Spac bubble.