I didn't have the time to update yesterday's post with head coach Tommy Tuberville's statement regarding the petition that was filed claiming that Tuberville defrauded investors. Here's Tuberville's statement, much thanks and huge props to KFYO, who has the whole statement:
"Coach Tuberville was surprised to learn of the pending lawsuit involving TS Capital Partners, LLC and he categorically denies any wrongdoing which has been attributed to him in this suit.
"He has never even met or spoken with most of the plaintiffs and he is acquainted minimally with the few other plaintiffs only because they were employees at TS Capital Partners, LLC. Coach Tuberville absolutely never solicited any investment from any of these or other individuals.
"It is important to note that Coach Tuberville himself invested significant funds and has never received any return from his own investment. Accordingly, he is hopeful the plaintiffs, who were employees, can help to provide answers as to what transpired.
"Coach Tuberville has cooperated with every regulatory inquiry and not a single one has asserted that he was involved in any wrongdoing. He intends to vigorously defend the allegations made against him and is confident he will be exonerated."
None of what I'm about to type should be considered legal advice or that I am attempting to represent you. This is just generally what I know about corporate law, which truthfully isn't very much.
The thing that I mentioned yesterday in the comments is that when people create these types of entities, the intent isn't to be sneaky, but for liability protection.Generally speaking, a person creates an entity, a corporation, limited liability company or limited partnership, to protect their personal assets. The caveat to doing this is that in order to keep that protection, you have to follow the rules and when you don't follow the rules, then as a shareholder or member or partner, you can be personally liable. When a person sues an entity and sues the shareholders, members or partners individually as well as the directors, managers or officers, and is successful, this is called "piercing the corporate veil". If you need to learn about how a person can pierce the corporate veil or get to the owners of the entity, i.e. shareholders or members, then Wikipedia has a good general summary.
A person creates a limited partnership which typically owns owns the asset, sometimes its real estate, sometimes it's cash or investments, sometimes it's all of the above. In a limited partnership, you have general partners and limited partners. Limited partners almost have zero potential liability just as long as they don't ever try to manage the limited partnership, hence the name "limited partners" as they generally just contribute to the limited partnership, but have no control. A general partner control the limited partnership and have the management responsibilities, this is usually a limited liability company (LLC) or a corporation. Most of the time, these things are set up where the general partner owns as small a percentage as possible, and in Texas, you can have a general partner own 0% of the limited partnership, which seems impossible, but the statute allows it. Then the limited partners own the rest. I think this is the basic set-up for Tuberville and Stroud's entities, but I cannot be 100% sure about this as the petition doesn't specifically detail this stuff.
Like I also said yesterday, there are a couple of problematic things here from a legal standpoint. The first thing is that the Delaware Secretary of State has cancelled their registrations for failure to pay taxes. In Texas, and I have no idea what the law in Delaware is, the law says that if the registration is cancelled, then the officers and directors of the entity are personally liable. The sole reason why you create an entity is to give you personal liability protection. I haven't had the time to check this, or I don't know if it's possible to check this online, but being able to pierce the corporate veil because of failure to pay franchise taxes is a bad thing and again opens up liability to the owners of the corporation, LLC or limited partnership.
More after the jump.
The other problem is that it is allegation of a breach of fiduciary duty. First of all, from reading the suit, it isn't clear that Tuberville had a fiduciary obligation to any of the entities, but he did hold himself out as a "managing partner". Unless this is something specific in the company documents, that's not standard to have a managing partner, usually you have a "manager" or a "president" or "CEO" or something like that. But in order for there to be some liability, the mere fact that Tuberville owns a 50% interest in either or both entities is not, in itself, an indication that Tuberville is guilty of a breach of fiduciary duty. An owner (i.e., a stockholder in a corporation or a member in a LLC) only gets to determine who the board of directors or managers are and that's usually the extent of their management of that entity. The board of directors or managers then determine who the officers of the corporation or LLC are and the officers usually handle the day-to-day operations. Again, it's not clear that Tuberville has a fiduciary obligation, but if he did, then that would be problematic. I can't even begin to understand the regulatory allegations, so I'm going to hold off on opining on any of them.
As to the allegations overall, I will say that if I'm an investor or an employee and I've lost money due to bad investments and I don't like the fact that the investors have lost my money due to those bad investments, then you sue everyone and you sue the companies and partnerships and you sue the people individually and you make allegations about how they breached their fiduciary duties and hope like heck that there's a settlement so you don't have to prove those breaches of fiduciary duty because I think that can be tough.
As to Tuberville's statement, I think is standard, just as the petition that was filed, to make your client look as good as possible. The fact that he's invested funds and lost money isn't relevant to me, other than the fact that it wouldn't surprise me to see these folks suing because they lost money, not necessarily because Tuberville breached some sort of duty, but this lawsuit is the quickest way to get try to recoup some of those losses. I'd also like to remind you that these are allegations and as of right now, you shouldn't take much stock into either parties' initial response.