Friday, September 29, 2023
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Red Hat Mogul Sued for $30 Million

BOSTON (CN) - Matthew Szulik, the former CEO of Red Hat software, who in December sued his family's financial adviser for $55 million, is now the defendant in a lawsuit by an aggrieved Los Angeles businessman. Jason Galanis claims Szulik's alleged losses were just a tax dodge, and that Szulik cost him $30 million in an effort to keep that scheme from unraveling.

In his federal complaint, Szulik claimed he wanted to put his family's money in a conservative portfolio of blue-chip stocks and bonds, so he asked James S. Tagliaferri, a longtime family friend, to handle his assets. Szulik claims Tagliaferri and co-defendant Patricia Cornell, owners and operators of TAG Virgin Islands fka Taurus Advisory Group, used his family's money for their own benefit, took millions in kickbacks along the way, and squandered his money on questionable investments of which he had no knowledge until it was too late.

But Galanis paints a different picture in his federal complaint.

Galanis claims that in the 13 years that Tagliaferri handled the Szulik family's money, Matthew Szulik played a significant role in selecting and managing his investments. Galanis claims Szulik borrowed money from TAG Virgin to purchase his initial interest in RedHat, and that after that investment grew exponentially, repaid only the principal.

Galanis says Szulik had extensive business contact with the companies in which he invested and used his position as a significant investor to influence those companies' business decisions, well aware of the state of his investments, their risk and their liquidity.

"For instance, although never formally holding the position, Szulik held himself out to be the chairman of a company he invested in called International Equine Acquisitions Holdings Inc., operator of a thoroughbred racing stable and owner of an equine hospital," the complaint states.

Galanis said that beginning in 2008 Szulik brought unreasonable pressure to bear on TAG, through legal threats, to gain economic advantages in investments in which he'd become disillusioned, "with the effect that TAG was coerced into constructively guaranteeing Szulik preferential liquidity."

"Plaintiff believes that as a result of Szulik's threats, duress and coercive actions, Szulik coerced TAG to remove Szulik from his immature investments by using funds of Galanis or companies owned by Galanis derived principally form the sale or disposition of securities belonging to Galanis entities," the complaint states.

As a result of these coercive actions, "Szulik was removed from immature investments he objected to, Szulik was the recipient of approximately $30 million in funds from the Galanis entities, in exchange for which the allegedly non-marketable securities Szulik objected to owning to maturity were place, in whole or in part, in the Galanis entities' accounts," the complaint adds.

But that wasn't all, Galanis said.

While these transactions were occurring, Szulik filed tax returns with the IRS that claimed improper deductions for supposed depreciation of Big Brown, the Kentucky Derby-winning thoroughbred of which he was part owner.

He then filed a strategically timed lawsuit against TAG to bolster his claim that the investments made through the company are worthless and that he had been the victim of fraud, "a central element in Szulik's planned tax evasion strategy," according to Galanis' complaint.

But Szulik's scheme was still imperiled: a business deal in which Galanis was engaged threatened to convert a portion of Szulik's allegedly worthless private stock into valuable, publicly traded shares in one of Galanis' companies, thereby undermining the "improper tax strategy," Galanis claims.

According to Galanis, Szulik improperly began a campaign to unravel the impending merger through false, misleading and disparaging statements about the parties to the transaction.

He claims Szulik enlisted the aid of a co-conspirator, a felon, to misappropriate emails and other confidential business information belonging to Galanis, to begin what amounted to "an extortive plan."

Galanis seeks compensatory and punitive damages and injunctive relief on claims of intentional interference with contractual relations, civil conspiracy, abuse of process, conversion, accounting fraud, violation of the Electronic Communications Privacy Act, and violation of the Computer Fraud and Abuse Act.

He is represented by Michael J. Sullivan with Ashcroft Sullivan in Boston.

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