David Losch is suing his former firm Private Equity Capital Corp., alleging such nasties as age discrimination, breach of fiduciary duty and breach of good faith and fair dealing. I know what you’re thinking: That sounds bad, but what the hell is Private Equity Capital Corporation?
Turns out that PECC is a fundless sponsor, or “pledge fund” manager, focused on lower middle-market acquisitions of private companies and carveouts of public ones. It’s been around since 1998, and has a website that lists a dozen portfolio companies.
According to Losch’s complaint, he was brought aboard at the end of 2006 as a senior investment pro. His compensation included a $185k annual salary, plus a 10% cut of any transaction fees, management fees and carried interest. All seemed fine at first, with Losch particularly involved in a deal for a Portland, Ore.-based company called Intek Plastics. Soon after, however, PECC added an ex-Metalmark pro named Chad Elliot. Losch claims that he was not told how the Elliot hire would affect the overall compensation pie, and became concerned when Elliot began taking the lead on Intek.
According to the complaint, firm founder John Ramsey would soon tell Losch that the firm was tight on cash, and asked him to come off salary for a few months. Losch demurred, but nonetheless did not receive his next paycheck. Ramsey called Losch to fire him about a week later, and allegedly refused to share any future closing fees or carry related to Inotek. His justification was that PE pros agree to forego payment for in-process deals if they leave before fees are generated, but Losch argued that such a clause didn’t apply, since he was terminated. If such behavior is acceptable, he says, then firms could always dump junior investors just prior to closing.
Losch would later recover that missed paycheck, and Elliot would ask him to work on a contract basis to finish the Intek deal. Elliot also allegedly told Losch that he was fired for performance, not cashflow problems.
All of which brings us to the latest round of litigation, in which Losch is requesting a variety of damages. He filed suit last week, and PECC has not yet responded. I left a message for Ramsey earlier today, but have not yet heard back.
In the meantime, you can read Losch’s complaint here: PECC_Complaint.pdf