Defrauded Del Biaggio Investor Given a Boost
(CN) - An investor defrauded by William "Boots" Del Biaggio may recover on its losses from notes that increased in value under bankruptcy, a federal judge ruled.
William "Boots" Del Biaggio III used his reputation as founder and CEO of venture-capital firm Sand Hill Capital Investments to secure $19 million in investments that he used to pay home mortgage and decorating expenses for his luxury properties and to pay off gambling debts, credit cards bills and other expenses.
Del Biaggio also secured an additional $45 million in loans by pledging as collateral securities owned by unwitting customers of a San Francisco brokerage firm. He used the money to buy an interest in the NHL's Nashville Predators and pay his personal expenses.
As security for bank loans, Del Biaggio altered statements for additional accounts that held roughly $4 million in securities, had low margin debt and remained stable from month to month, minimizing the risk that lenders would detect the fraud.
In 2009, Del Biaggio was sentenced to eight years in prison and ordered to pay $67.5 million in restitution.
San Francisco-based U.S. District Judge Yvonne Rogers accepted the bankruptcy court's proposed findings Monday regarding certain outstanding notes belonging to Sand Hill.
Sand Hill investor Thomvest lost 90 percent of its $10 million investment when the firm folded, which occurred before Del Biaggio was indicted for fraud.
Thomvest then transferred the Sand Hill shell to Del Biaggio in exchange for $1, but their contract left open the possibility that it could recover funds if Sand Hill's outstanding notes accrued value.
Sand Hill's trustee fought Thomvest's claim to a Jamba Juice warrant, a Kiwico note and a Serengeti warrant.
But "the Bankruptcy Court found that the parties' intent was to transfer all remaining assets of value to Thomvest in satisfaction of Sand Hill's debt to Thomvest," Rogers said. "The court agrees."
The Serengeti warrant was assigned a value of $880,000 when Thomvest initially made its claims against Sand Hill. Since it is now worth $11.2 million, Thomvest is entitled to a reformation of the contract.
"The static $880,000 valuation from that time does not reflect the value of the warrant at any other time or what its value might have been at any point if Thomvest had elected to exercise its rights and cashed it in," Rogers wrote. "The damages available from a legal action would be incapable of adequately accounting for the unique nature of the warrant and its potential to change in value markedly over time - which facts did indeed occur and increased the warrant's value monumentally."