After weeks of foreshadowing, StoryBuilt’s receiver has sued the failed developer’s former top executives.
In his suit, Stapleton Group managing director Mike Bergthold details a laundry list of alleged misconduct by former CEO Anthony Siela, former CFO Ryan Diepenbrock and former COO Chad Shepler. Bergthold claims the executives “severely mismanaged” the company and some of its joint ventures, “abdicating their duty of care and loyalty.”
The receiver wrote that he has already discovered evidence of misconduct during his work, much of which has been a forensic accounting of StoryBuilt’s books, and he expects to find more during this lawsuit’s discovery process.
The claims laid out in the suit are wide ranging and cover a number of StoryBuilt developments. They include breaches of fiduciary duty, misuse of investor funds and unjust enrichment.
StoryBuilt was once one of Austin’s fastest-growing developers, finishing over 50 residential developments and selling or leasing over 1,500 homes. It suddenly collapsed and entered receivership this summer, and is now facing scrutiny from state and federal regulators including the SEC, the IRS and the FBI.
Some of the lawsuit’s most startling claims center around StoryBuilt’s fundraising.
In one case, it is accused of raising about $6.7 million from investors to buy a property it called Dayton. StoryBuilt never bought it, though, instead commingling that project’s money with other funds not allocated for the project, the suit alleges.
A small percentage of those funds were spent on diligence and legal fees, but they were spent on unrelated projects, according to the lawsuit. No funds were returned to investors, the receiver claims.
As of 2019, StoryBuilt could only accept money from accredited investors. But an audit of data from 2019 through 2022 showed that 320 of the firm’s investors were not accredited, the suit alleges. In January 2023, the executives were told that a “significant number” of its investors were not accredited, and that they had implemented systems that intentionally did not verify accreditation status, according to the suit.
The executives were allegedly told that could put them in the crosshairs of the SEC, but they took no action to fix the issue. The company is now being investigated by the SEC and the Texas Securities Board.
The company is also under scrutiny from the Department of Justice, the IRS’ criminal investigation unit, the Department of Labor, the FBI, the Texas State Comptroller and the Texas Workforce Commission. These have required the receiver to produce “detailed information at large cost,” according to the suit.
The lawsuit also includes claims of mismanagement made by former joint venture partners of StoryBuilt. At different projects, Partners Group, IHP and Hearthstone Housing Partners all accused StoryBuilt executives of bungling their deals, to great financial loss.
IHP accused StoryBuilt of misusing funds earmarked for their joint venture development, the Ellie May condominiums in Austin, according to the suit. That made it impossible to pay vendors, causing a mechanics lien to be filed against the property, the suit alleges.
As part of the development agreement in the joint venture, StoryBuilt was to build up to 84 attached condos on the property. But StoryBuilt executives used $478,000 earmarked for the project entity to cover development costs at an adjacent property, according to the lawsuit. They also allegedly paid $544,000 in insurance premiums for the other properties with the money.
Hearthstone’s gripes occurred at George, a 116-home project with single-family houses and townhomes at 2211 E.M. Franklin Avenue in Austin. StoryBuilt was brought on to manage the project, but Hearthstone claimed the company went millions of dollars over budget, ran behind schedule and failed to actually develop the homes, according to the suit. It also allegedly misdirected over $1.5 million in buyers’ deposits and $1.2 million in construction loans from Stearns Bank.
The problems got so bad that Heartstone had to hire third parties to help with day-to-day management at the project, according to the lawsuit.
Partners Group is a familiar presence in the StoryBuilt saga, having already slung mud at the receiver’s attempts to sell off the StoryBuilt portfolio. Partners now also alleges StoryBuilt defaulted on several development and finance-related guarantees of their joint-venture agreements. Those include promises to maintain net worth and liquidity minimums, as well as delivering reports on the development process, according to the lawsuit.
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As a result, StoryBuilt allegedly lost its right to promote distributions.
Partners also claimed that at Thornton, an apartment building at 2313 Thornton Road managed by StoryBuilt, the company leased units without informing investors or reporting any generated income.
Siela and Shepler did not respond to requests for comment, and Diepenbrock could not be reached. The former executives have not yet responded to the lawsuit in court.