Case 2:19-cv-00229-jmc Document 1 Filed 12/06/19 Page 1 of 13 il e ntf rFlrlT Cilr_lltT lii i',mi I o is i irTti' r: t;,' LTNITED STATES DISTRICT COURT FOR THE DISTzuCT OF VERMONT THE HOEHL FAMILY FOUNDATION, Plaintiff V. RONALD L. ROBERTS and EIDEARD GROUP, LLC, Defendants ) ) ) ) ) ) ) ) case ?Bl3 BEC -5 Al{ 8: 58 No. 2'. lq. CV, ZZq COMPLAINT The Hoehl Family Foundation ("Foundation"), by its attorneys Gravel & Shea PC, file this Complaint against Ronald L. Roberts and Eideard Group, LLC ("Erdcard") as follows: Nature ofAction l. On March 3I,2017, Ronald L. Roberts and Eideard directed an investment of $1 million from the Foundation to G-Form,LLC ("G-Form"). Mr. Roberts and Eideard did this secretly. They did not tell the six Hoehl siblings who served as trustees of the Foundation with Mr. Robens. The investment breached the investment management agreement the parties had signed and breached Eideard and Mr. Roberts'fiduciary duties to the Foundation. By keeping the investment a secret for the next two years for the purpose of inducing the Foundation to remain its client and preventing the discovery of Intemal Revenue Code ("Code") violations, Roberts and Eideard also violated the vermont consumer protection Act. 2. The Foundation's investment in G-Form violated the self-dealing and excess business holding penalry provisions applicable to tax-exempt private foundations under the Code. Under these provisions, and as a direct result of the investment, the Foundation incurred gravel a shea I l^**^.*, 76 St. Paul Street P.O. Box 369 Budiagton, Vemon t 05 402-0369 Case 2:19-cv-00229-jmc Document 1 Filed 12/06/19 Page 2 of 13 an excise tax penalty of $300,000, and may be subject to additional excise tax penalties. The Foundation also incurred over Revenue Service 3. $ 100,000 in professional fees to address and report to the Intemal ("IRS") the excise tax penalty exposure created by the Defendants'actions. Eideard currently values the Foundation's G-Form interest at $0, making the investment a total loss. The Foundation also lost the opportunity to invest the $1 million during the almost three years it has been invested in G-Form. Eideard has charged the Foundation at least $660,000 in management fees since March3l,20l7, which the Foundation also seeks to recover. Parties 4. The Foundation was created by Cynthia and Robert H. Hoehl in 1993 to support Vermont through grants to local nonprofits that help Vermont families. It is a tax-exempt private foundation under Section 501(c)(3) of the Code. The current trustees of the Foundation are the surviving children of Cynthia and Robert H. Hoehl: Robert F. Hoehl, John Hoehl, Peter T. Hoehl, Krystin Downes and Katharine Kostin ("Hgehljib.lingg").1 5. Eideard is a New Hampshire company that provides investment management services and home office services for families with significant assets. Eideard, and its predecessors in interest, served as the investment manager for the Foundation for more than ten years. Eideard has provided day+o-day administration services to the Foundation since at least 2012. I At the time that most of these events occu:red, a sixth child, Nicholas Hoehl, was also a passed trustee. Nicholas away on November 12,2019. gravgl e. She2 I l^**^'*, ARONON&@rcMTON 76 St. PauI Street P.O. Box 369 Budiagton, Vmont 05402-0369 -2- Case 2:19-cv-00229-jmc Document 1 Filed 12/06/19 Page 3 of 13 6. Upon information and belief, Mr. Roberts is a one-half owner of Eideard. Between 2011 and September 2019, Mr. Roberts also served as treasurer and a trustee of the Foundation. Jurisdiction and Venue 7. This Court has jurisdiction pursuant to 28 U.S.C. $ 1332 because Eideard is a New Hampshire limited liability company that is owned by trvo New Hampshire residents, Mr. Roberts is a New Hampshire resident and the Hoehl Family Foundation is a Vermont non-profit corporation. 8. Eideard regularly conducts business in Vermont, as it has multiple Vermont clients. Mr. Roberts regularly conducts business in Vermont as an agent of Eideard. 9. Eideard regularly conducted business in Vermont as the investment manager for the Foundation. Through its agent Mr. Roberts, Eideard regularly interacted with the Foundation's trustees, including attending regular board meetings in Vermont beginning in at least 201 1. The Foundation's By-Laws require regular meetings to be held in Vermont. 10. The amount in controversy exceeds $2 million. 11. Venue lies in this judicial district pursuant to 28 U.S.C. $1391(b)(2) because a substantial part of the events occurred in Vermont. gravql o. She2 I l^**.^'*' ARoINoWCOIrcMION 76 St. Paul Street P.O. Box 369 B*I in gron" Vrmo nt 05 40L0369 _j _ Case 2:19-cv-00229-jmc Document 1 Filed 12/06/19 Page 4 of 13 Background 12. Mr. Roberts, through Eideard and its predecessors, began managing the assets of the Hoehl family approximately twenty years ago. Mr. Roberts and Eideard also managed assets for Robert H. and Cynthia Hoehl, their children and grandchildren, and multiple entities in which the Hoehl family had ownership interests, including BDP Holdings, LLC ("BDP"), R & A Venture Capital III, LLC (o'B&A"), and Hoehl Family Real Estate,LLC. The Hoehls viewed Mr. Roberts as a trusted adviser for investment management services and home offrce services. 13. Robert H. Hoehl passed away in 2010 and Cynthia Hoehl passed away in 2016. Since 2010, Robert F. Hoehl has been the President of the Foundation. 14. In20l2, the Foundation signed an investment management agreement (oolMA") with Mr. Roberts and Eideard. Exhibit 15. 1. The IMA stated that NIr. Roberts and Eideard would provide investrnent management services to the Foundation in exchange for a fee. Id. 16. Mr. Roberts and Eideard agreed to develop an investment strategy for the Foundation, construct a portfolio, and regularly review the portfolio. Id. 17. The IMA contemplated investments in: (a) taditional investment vehicles like "ETFs and mutual funds;" and O) alternative investments such as "private equity funds, hedge funds and real estate partnerships." Id. The IMA also stated that Roberts and Eideardhad'full investment discretion" but that Roberts and Eideard would'orefrain from recommending specific industry sectors or individual securitie, . . . ." 18. Id. (emphasis added). Mr. Roberts and Eideard promised to use their best professional judgment "to identifu the most suitable investments for the Foundation's assets." gravql & shea l^*"*^,*, 76 St. Paul Sreet P.O. Box 369 Budington, Vemo ac 05 4024369 -4- Id. ltilr. Roberts and Eideard Case 2:19-cv-00229-jmc Document 1 Filed 12/06/19 Page 5 of 13 also promised to provide full disclosures about the investments to the trustees [not defined] and their tax counsel on a regular basis. /d. Excess Business Holding 19. In addition to managing assets for the Foundation, Eideard and Mr. Roberts managed assets for other Hoehl family entities and most of the individual family members. 20. Mr. Roberts is the managing member of BDR which is approximately 99Yo owned by the Hoehl Siblings. 21. Mr. Roberts is also the managing member of R&A, a venture capital fund in which the Hoehls hold, directly or indirectly, a75%o interest. 22. Beginning in approximately 2012,Mr. Roberts began periodically directing BDP to loan large sums to G-Form without the knowledge of the Hoehl Siblings. As of March 31, 2017, Mr. Roberts had secretly directed more than $19 million in loans from BDP to G-Form.2 In addition, prior to March 31,2017, Mr. Roberts had also secretly directly BDP to make an equity investment in G-Form of approximately $2.5 million. 23. During this same period, Mr. Roberts secretly directed R&A to invest millions of dollars in G-Form. By 2017, R&A held a 20o/o ownership interest in G-Form. 24. Mr. Roberts did not properly disclose any of the aforementioned G-Form investments or loans to the other members of BDP or R&A. 25. Mr. Roberts also invested his and his family's assets in G-Form through the Ronald L. Roberts Revocable Trust, the RTR 2013 Revocable Trust and the RTR 2016 Revocable Trust. 2 gravgl e. She& At a later date, BDP's loan to G-Form was converted to an equity interest. I l^**^,*, 76 St. Paul Street P.O. Box 369 Bulingon, Vmo nt 05 4OL0369 -5- Case 2:19-cv-00229-jmc Document 1 Filed 12/06/19 Page 6 of 13 26. On March 31,2017, Mr. Roberts used the absolute discretion granted to him in the IMA to improperly invest $1 million of the Foundation's money into G-Form. That same month, Mr. Roberts was selected as chairman of G-Form's board of members. 27. For a multitude of reasons, G-Form was an inappropriate investment for the Foundation including, but not limited to, that G-Form was on the verge of financial collapse. 28. $10 As of March2017, G-Form had three straight years of operating losses exceeding million in each such year. In20l6, G-Form's accountants issued a "going concern" warning, indicating that it may not be a viable business at all. 29. Mr. Roberts invested the Foundation's money in G-Form because he had already loaned or invested tens of millions of dollars of his personal assets and his other clients'assets into G-Form, which was having significant cash flow shortfalls. 30. Mr. Roberts kept the investments secret from the Hoehl Siblings until early 2019, when Mr. Roberts distributed a financial report at a meeting that disclosed the Foundation's investment in G-Form. 31. Prior to this 2019 meeting, the financial reports presented by Mr.Roberts and Eideard did not disclose G-Form as a Foundation investment. 32. During the course of 2019, the Hoehl Siblings began to uncovered the full extent of Defendants'mismanagement of the Foundation's assets, which include violations of the Code and investments not aligned with the interests of the Foundation's public stakeholders. 33. All three of the Roberts family revocable trusts, R&A, and BDP were disqualified persons, as defined in provisions of the Code relating to excise tax penalties applicable to private foundations. gravgl e. I She2 l^*^**^r*, APROINON&@rcMTON 76 St. PauI Stret P.O. Box 369 Bulirgton, Vemo * 05 402-03 69 -6- Case 2:19-cv-00229-jmc Document 1 Filed 12/06/19 Page 7 of 13 34. At all relevant times, Mr. Roberts was acting in his role as investment manager for the Foundation. 35. None of the Foundation's trustees had the authority to make investment decisions, nor did the Foundation's treasurer. 36. Mr. Roberts and Eideard, in their role as investment manager, had the sole authority and discretion to make the Foundation's investrnent decisions. Tax Reporting Obli gations 37. Upon learning that the Foundation had invested in G-Form at a time when other disqualified persons owned more than 20% of G-Form, the Fotmdation's accountant expressed concerns that the Foundation may have an excess business holding and that Mr. Roberts may have engaged in self-dealing, each of which is subject to a range of excise tax penalties under the Code. 38. The Foundation engaged professionals to review the issue, including an attorney who specializes primarily in the taxation of charitable organizations. 39. The Foundation concluded that it had an obligation to report to the IRS that, when Mr. Roberts directed the Foundation to make a $1 million investment in G-Form, Mr. Roberts engaged in self-dealing and the investment resulted in an excess business holding. 40. Under the Code, the Foundation is required to dispose of its investment in G- Form both to cure its excess business holding and to prevent the imposition of additional penalties. 41. Under the G-Form operating agreement, the sale of G-Form interests is restricted. The Foundation may offer its interests to any other current member without restriction. gravgl o. She2 I l^-o*^'-. APROINON&@MMTON T6SLPaulSEet P.O. Box 369 Brrlington, Vmont 05402-0369 '7 - Case 2:19-cv-00229-jmc Document 1 Filed 12/06/19 Page 8 of 13 However, it is unable to sell to a non-member without that purchaser being willing to buy all other outstanding membership interests at the same price. 42. If the Foundation does not successfully dispose of its G-Form interests, it may be subject to additional excise tax obligations exceeding $2 43. million. Eideard currently lists the G-Form shares as worth $0 on its Foundation financial statements. 44. The Foundation timely filed its 2018 federal tax retum3 on November 15, 2019, and remitted a $300,000 excise tax for the excess business holding caused by Defendants. The Foundation also reported that its manager, Mr. Roberts, had engaged in self-dealing by making the2017 investment in G-Form. 45. The Foundation's 2018 return will likely be subject to IRS audit and the Foundation may be subject to potential additional excise ta