DALLAS — This story was originally published by our content partners at the Dallas Business Journal. You can read the original version here.
A crucial three-day hearing is underway that will determine what happens next in the high-stakes legal fight between the billionaire backers of failed "anti-woke" banking startup GloriFi.
Lawyers for Dallas-based With Purpose Inc., which did business as GloriFi, and Toby Neugebauer, the oil and gas investor who started the company in 2021, seek to convert an ongoing bankruptcy case from a Chapter 7 liquidation to a Chapter 11 debt reorganization. Doing so would result in removal of the trustee overseeing the GloriFi estate, who the company's attorneys claim has acted in "bad faith," and enable Neugebauer to move forward with lawsuits against the billionaire investors he blames for GloriFi's downfall.
At the same time, Scott Seidel, the trustee, wants to move forward on a deal with Rick Jackson, one of the investors, that would recapitalize the estate with $6 million and enable it move forward with litigation against Neugebauer to repay creditors. Seidel had previously agreed to a similar deal with Neugebauer that would have provided $4.5 million but accepted Jackson's offer following a court hearing in mid-August.
U.S. District Judge Michelle Larson heard almost nine hours of arguments and testimony on Sept. 23 in the Earle Cabell Federal Building in downtown Dallas. The hearing continued Sept. 24, with a conclusion expected Sept. 25.
Davor Rukavina, an attorney at Munsch Hardt Kopf & Harr PC representing Seidel, described the proceeding as a "critical do-or-die hearing" for Neugebauer and GloriFi.
What was GloriFi?
Neugebauer started GloriFi in 2021 with a goal of providing a conservative alternative for investors who have become frustrated by the commitments some financial giants have made to environmental, social and governance initiatives, otherwise known as ESG.
GloriFi received financial backing from big-name investors including Ken Griffin of Citadel LLC and Peter Thiel, the co-founder of PayPal, Palantir Technologies and Founders Fund. Other backers included Jeff Sprecher, the founder, CEO and chairman of Intercontinental Exchange, which owns the New York Stock Exchange; Jackson, CEO of Georgia-based Jackson Healthcare LLC; Nick Ayers, former chief of staff to former Vice President Mike Pence; and Vivek Ramaswamy, an entrepreneur and former Republican presidential candidate.
Despite the big names behind it and the prospect of going public with a possible $1.65 billion valuation, GloriFi shut down in November 2022 after running out of money. Neugebauer alleges investors engaged in racketeering by conspiring to steal trade secrets and intellectual property from GloriFi in order to start up their own anti-woke financial companies.
The wealthy investors who backed GloriFi, meanwhile, claim Neugebauer mismanaged the company, attempted to obtain it for himself and drove it into the ground.
In October 2022, the Wall Street Journal reported that GloriFi was in financial trouble and that some employees were concerned about a chaotic work environment, including allegations of volatile behavior by Neugebauer.
Neugebauer has denied the allegations and said the Wall Street Journal story was part of a scheme by the investors to destroy his reputation and create a liquidity crisis for GloriFi.
Drama unfolds as hearing begins
Despite the importance of the hearing, it almost didn't happen because of a mistake by GloriFi's legal team. Attorneys did not provide the required 21 days of advanced notice of the hearing to creditors.
Larson described herself as "floored" by the error and said she did not "relish the position the debtor has left the court in." Larson decided to "reluctantly" allow the hearing to proceed but said she would not consider certain evidence and if the case converts from Chapter 7 to Chapter 11, it will do so on "negative notice."
Arguments, testimony begins
Attorneys for both sides on Sept. 23 began laying out their arguments and several former GloriFi employees testified about what it was liking working at the company, which operated out of Neugebauer's Dallas home.
Rukavina described the proposed conversion of the case as "strategery." He said Neugebauer is trying to get others to "foot the bill" for a "tour of revenge against the billionaires" without having to repay creditors.
Frank Wright, an attorney representing With Purpose, argued that federal law allows parties to convert their bankruptcy cases to Chapter 11 "at any time" as long as they meet certain qualifications. He also claimed neither Neugebauer nor a collateral agent representing creditors "are or solely control the debtor" and that allegations against Neugebauer are "false and unsubstantiated."
Chase Potter, an attorney at Iacuone McAllister Potter PLLC who represents Ayers, said any claims that Neugebauer is not in control of GloriFi or its collateral agent are "utter nonsense." He also said that the idea that GloriFi's backers "conspired to destroy a company they invested their own money into makes no sense."
Under the proposed Chapter 11 plan, GloriFi would bring on Leif Clark, a retired U.S. bankruptcy judge who sat in the Western District of Texas for 25 years, as chief restructuring officer. The company would also get recapitalized with debt financing and move forward with Neugebauer's claims against the investors.
Clark testified and said based on his reading of court documents, he believes Neugebauer's lawsuits "might be more than sour grapes." He said he believes Neugebauer's legal claims are worth more than what Seidel, the trustee, has agreed to sell the estate for to Jackson.
Clark testified that GloriFi has not secured a term sheet or any draft loan financing documents for the debt financing.
The employees who testified said drinking would occur at the workplace usually starting around 4 p.m. and later. All of them said they never experienced a hostile work environment. Cathy Landtroop, the former chief marketing officer of GloriFi, said Neugebauer would "microdose" regularly throughout the day by mixing rum and Red Bull, but "not get intoxicated."
