CA Ventures’ ex-COO lawsuit asks where the money went

CA Ventures creditors and its office landlord are getting around to the same question that former executive JJ Smith has been asking of the firm and its founder and CEO Tom Scott for three years: Where’s my money?

The Chicago-based multifamily investor and developer is believed to have a portfolio of properties and other assets valued at $15 billion. Smith, one of the earliest employees hired by Scott, has alleged he was wrongly terminated from CA Ventures after he contributed greatly to its rise on a wave of student housing development projects since its founding in 2004.

Smith is taking his lawsuit against Scott and a series of CA Ventures affiliates to trial in November. The pending court date follows three years of legal maneuvers and delays that included an eight-month lag due to the retirement and replacement of a Delaware judge.

Smith has nevertheless overcome multiple attempts by Scott and his firm to get the case tossed out of court. He also has persistently sought — and in some cases obtained — company financial records likely now of interest to CA Ventures investors, creditors and its own landlord as it faces multiple lawsuits over claims by individual lenders and unpaid rent at its Chicago headquarters at 448 North LaSalle Street.

Many records in the Delaware court case are redacted from public view, but could come into play if the case ends up in trial this fall.

And some recent filings reveal more about the nature of the dispute since Smith, who held multiple titles with CA Ventures, including COO, alleged he was suddenly fired by Scott without cause in early 2020. The termination followed a dispute over how much Smith’s share of equity in the company was worth when negotiating a buyout with Scott.

Smith claims Scott lowballed him with an offer of cash for equity even after a disclosure to CA investors that Smith’s shares in the firm were worth more than $70 million. Smith’s suit contends that he was fired to pave the way for his equity being seized.

“This is no garden variety wrongful termination case, but rather one of a controlling member’s brazen pattern of shaking down minority members of Delaware LLCs and appropriating the value of their interests to himself,” Smith’s lawyers wrote in a March filing.

One of Smith’s lawyers, Doug Albritton, is based in Chicago and previously represented former CA Ventures CFO and co-COO David Cox in a 2014 lawsuit against Scott that accused the CEO of essentially the same practice: making unfair offers to repurchase shares from tenured employees when they explored cashing out. Cox settled that case with the company within a year of filing the complaint.

Smith’s attorneys have expressed concerns about the values of equity shares in the company sliding from what CA Ventures and Scott said they were worth when their client was a part of the company. They wrote in court filings that there’s evidence the company’s “valuation figures are entirely unsupportable.”

“And they have engaged in discovery conduct that has required and will continue to require the Court’s intervention,” Smith’s lawyers wrote of the CA Ventures affiliates and Scott. “Those are uncomfortable but inescapable facts for Defendants.”

The court has since allowed Smith’s legal team to depose Scott and CA Ventures CIO John Diedrich, among others. Smith is also seeking financial records kept by banks and other businesses that had dealings with CA Ventures affiliates, records show.

Scott and CA Ventures leadership and counsel did not return requests for comment.

They have fought Smith’s attempts to compel discovery of materials from the company’s banking partners and to gain access to other separation agreements from former CA Ventures employees that included repurchases of company equity. They’ve argued they didn’t do anything unfair to Smith by ending his employment and thus far preventing him from trading any company equity for cash.

They also contended that the privacy of the former employees with whom they came to such agreements or settlements should be protected. The court, meanwhile, has arranged for the information to be shared among the attorneys and the judge and shielded from the public.

“The Defendant entities are operating or holding companies in various real estate industries, which means their values change over time depending on the circumstances existing at the time they are valued,” the CA Ventures affiliates and Scott argued in a spring motion against producing the equity purchase documents. Each agreement included a different combination of items exchanged, such as severance pay, extended health insurance coverage and other considerations, they said in their bid to label the information irrelevant to Smith’s case.

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