(CN) - Shareholders say the manager of two property holding companies looted them of $100 million to fund his misadventures in the stock market and then - perhaps understandably - refused to let them look at the books. And they say defendant Rubin Schron told them he has "no duty to explain" what he's done.
Defendants in Delaware Chancery Court are Rubin Schron, of Brooklyn, N.Y., SMV Property Holdings and SWC Property Holdings, both LLCs. Schron has been sole manager of SMV since 2004 and of SWC since 2003, according to the complaint. Also sued is Cam-elm Company LLC, the majority member of the other LLCs, which Schron also allegedly controls as its sole manager.
Plaintiffs include Mich II, which owns 2.5 percent of SMV; SEEVA II, 12.5 percent owner of SMV; MICH, which owns 2.5 percent of SWC; and SEEVA, which owns 5.5 percent of SWC.
According to the 40-page complaint, SMV and SWC are real estate holding companies that collect revenue from properties leased by nursing and health care facilities. Both entities were formed in business deals that Leonard Grunstein and Murray Forman originated. The businessmen, owners of plaintiffs MICH II Holdings LLC and SEEVA II Holdings LLC, asked Schron to act as a sole manager for SMV and SWC after completion of the two transactions in 2003 and 2004.
The two shareholders say Schron has blocked their efforts to unearth the extent of his misconduct by refusing to open the books. They say Schron also stripped them of their membership interest and share of profits, the suit states.
"Schron and CAM-Elm are looting SMV and SWC and denying the MICH and SEEVA companies their rights as members," the complaint states. "Schron has misappropriated more than $100 million from SMV and SWC, kept false and inaccurate books and records, and refused to provide members with audited financials for SMV and SWC as required by the SMV and SWC Operating Agreements. As part of Schron's effort to cover up his misconduct and squeeze the minority members out of SMV and SWC, he is now refusing to recognize the membership interests of the MICH and SEEVA Companies."
In May this year the shareholders say they tried to inspect the books and records of the holding companies to "shed light on the sudden and unexplained termination by SMV and SWC of distributions of profits."
But according to the complaint, Schron told them that he had "no duty to explain his decision."
"In effect, Schron is claiming he can unilaterally rewrite the SMV and SWC Operating Agreements to deprive the MICH and SEEVA companies of their rights. Schron, however, has no power or authority to unilaterally terminate the interests of the MICH and SEEVA companies and rewrite the operating agreements to exclude members who are parties to those agreements. Schron is acting ultra vires and for an improper purpose. In bad faith, Schron is seeking to enrich himself and his immediate family, which own majority-member CAM-Elm, and to retaliate against the owners of the MICH and SEEVA Companies, Leonard Grunstein and Murray Forman, who have objected to Schron's mismanagement and misappropriations," the complaint states.
The shareholders say Schron's actions are "the culmination of a history of misconduct" which includes siphoning millions of dollars from the companies to cover a failed interest rate swap with Citibank.