Nepotism, unlawful meddling and mismanagement are just some of the accusations levied against Silver Star Properties founder and former CEO Allen Hartman. Now he’s firing back.
Last month, Silver Star’s executive committee, led by co-CEO Gerald Haddock, sued Hartman, accusing him of fraud, self-dealing and manipulation amounting to more than $50 million in damages, plus interest.
Hartman released a video to shareholders on Jan. 9 addressing Haddock’s accusations. In the video, Hartman — who remains the company’s largest shareholder — requests a shareholder meeting after accusing the executive committee of sidestepping that annual requirement. The Real Deal sat down with the embattled former CEO, who addressed ongoing litigation, responded to accusations and unpacked his response video. This interview has been edited for length and clarity.
What’s your reaction to the most recent lawsuit, seeking $50 million in damages, which lists your daughter Margaret Hartman and your wife, Lisa Hartman, as co-defendants?
I would never damage a company that I am a 15 percent owner in. This lawsuit is all about the executive committee trying to avoid having a shareholder meeting. In fact, they have damaged the company $50 million if not more by dropping the occupancy of Silver Star’s holdings from 81 percent to 67 percent as of April. They don’t know what they’re doing.
Nepotism accusations were thrown around regarding the elevation of your daughter in the company. Was she given preferential treatment and unduly elevated?
They just made up a job description for her that did not have one scintilla of truth in it. Lies regarding how her job caused employees to have low morale because she was being promoted. Everything is false. She had a low-level role with responsibilities typical of anyone else in her position. But, what does that tell you, that they would lie about it?
What has the shareholder response been to your video?
It’s been extremely positive. We called the top 1,000 shareholders, and the vast majority are with us. The video is part of a revocation campaign for the consent solicitation that they’re doing illegally right now.
What are they doing that you think is illegal?
Well, they’re breaking the law in a lot of different ways. Number one, they changed the bylaws to entrench and reelect themselves, which is illegal. You have to have shareholders vote to change the bylaws. They’re afraid of having a shareholder meeting and have circumvented that, which is another way they’re breaking the law. The third is that the charter requires the company to be liquidated by April 2023.
In the video, you say former CEO Mark Torok was fired. The company’s news release said he resigned for personal reasons. Are you disputing that account?
That is correct. Gerald Haddock had [CFO] Lou Fox fire Mark Torok. It was one of Haddock’s schemes. When Lou Fox fired Torok, he left and walked out without notice, because he was so upset. Treadwell, the next CEO, walked out without notice, too. Now, the general counsel just left last week. Doesn’t that tell you something about Haddock’s management skills?
It was laid out to shareholders that part of what allowed the company’s $300 million debt to accumulate was your failure to pay it down during your tenure.
I was gone 12 months before the debt was due. I really had nothing to do with the company. Even though I’m on the board, they run the company by committee. They’ve isolated me from any communication. I’ve received nothing. I have no idea what’s going on in the company. It’s 100 percent up to them, and they have had a year to replace the debt.
Did you borrow cash from Hartman vREIT XXI without board approval?
Yes, but it was an accounting record. I hadn’t received the salary in about 20 years, and I was receiving a percentage of the distribution. When the distribution stopped, CFO Lou Fox failed to reclassify the money I was receiving as a salary. I got five months of income that should have been classified as a salary, but it was classified as distributions, but there were no distributions. I gave the money back and ended up getting a salary from then on.
Subsidiary Hartman SPE filed for bankruptcy, which Haddock said was an attempt to remove “unlawful lis pendens.” You admitted to placing the liens in a judgment. Why?
We think they were proper. We think they were legal. We thought we had the right to be able to have liens on the properties since we own a percentage of the company. However, we didn’t see any real endgame keeping the liens on the property. So we went through, with the advice of my attorney, and withdrew the liens. It had no impact on them because they sold the assets anyway. It might have delayed things a month or two, but it had no impact other than that.
What’s your response to a separate lawsuit that claims you and your wife “unlawfully solicited proxies” to influence stockholders?
We’d sent them a letter early on threatening to solicit proxies. They didn’t like the letter, so they filed the lawsuit. However, the letter was a threat to do it, not an admission of actually having done it. Now, we’ve filed everything appropriately in the state of Maryland to be able to talk to proxies. I think we’ve only had the list for about three weeks now, so we couldn’t have done anything.
In our Q&A with Haddock, he said his issues with you were strictly business, and that he would gladly shake your hand. How do you view him?
He’s evil. That’s how I view him. The guy’s a madman. He’s a maniac. What else do you call someone who lies about me using the firm as a personal piggy bank? Haddock is doing everything he can to destroy me, individually. I mean, you don’t file a lawsuit against somebody’s wife and daughter—that’s just unheard of. He’s playing the devil is what he’s doing.
[Haddock disputes these statements. “We are overwhelmingly winning this proxy battle. We have absolutely followed Maryland law. [Hartman] didn’t like it, and he’s had trouble interpreting the law,” Haddock said. “I feel sorry for him. He is doing nothing with these types of statements but continuing to be vindictive. Bless his heart.”]
In your view, what could be motivating Haddock to “play the devil” as you say?
It’s 100 percent greed. He’s sucking the money out of the company and taking as much as he can. He’d do anything and tell any lie to accomplish that. He thinks he can get people to vote for him. Now I’m having to respond to the lies.
What’s your relationship with Silver Star’s co-CEO, Dave Wheeler?
He’s just a bump on a log and doesn’t do anything. He can’t do anything. He doesn’t get anything done. I was getting ready to fire him because he failed to deliver financing after nine months, but the board said they didn’t want me to fire him, so I didn’t. He was unable to get things done time and time again.
[Wheeler took offense to Hartman’s characterization.
“Scapegoating is the sign of a failed leader,” he said. “It’s prima facie ridiculous that he would say those things. He knows that I have come through for the company many times. It’s really unfortunate that he would turn on folks … to protect himself and cover his own tracks” ]
It sounds like you’re unhappy with Silver Star’s direction. What are your thoughts on the pivot to self-storage?
The business charter said the company must be liquidated in 10 years, and our 10th anniversary was last year. So the shareholders — including myself — are saying to the company, “We need to liquidate,” but the executive committee is saying, “No, we want to keep your money and go into self-storage.” We’re saying it’s the wrong time to buy self-storage. We don’t want to go into it; we just want our money back. Period. And that’s the end of the story.
Haddock said they’ve received complaints of you attempting to religiously influence employees. Is that true?
I know nothing about that. We’ve had men’s and women’s Bible studies that were led by people other than me. It was just something that was done outside of business hours and something people liked. So we had probably a dozen people or more involved in both of them. People were invited: nobody was forced to do anything. We tried to be friendly to everybody.
You’ve previously mentioned running your company on “Biblical principles.” How do you integrate your faith into your business?
I think you could sum that up in one word, and that is “righteousness.” Operating in a godly manner, where you’re telling the truth, where you’re honest with the people you’re dealing with, and where you put the investors first. Lying doesn’t fit that mold. Blatant bald-faced lies? Lies where they write a whole blown-up paragraph about my daughter? Lies that this was used as my personal piggy bank? Those are the lies I’m talking about.
You were ousted from Whitestone REIT, another company you founded, in 2006. What lessons have you learned from these public battles?
Evil will come against you, and you just have to be aware of it. When people are evil, they want to do harm, and that’s what they set out to do. I should have named a better board. That’s what happened then, and that’s what’s happening now.
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