While Gov. Bruce Rauner says he has no day-to-day involvement in managing his investments, he allegedly took meetings in 2015 — one on the back porch of the governor’s mansion in Springfield — about an investment he made before becoming Illinois’ chief executive, according to a lawsuit unsealed Tuesday.
The investment in a Michigan mortgage company earned $15 million for the governor, who worked in private equity before taking office. But that “apparently is not enough for Rauner,” according to the lawsuit, filed by a former investment partner.
Harreld N. “Kip” Kirkpatrick III, a onetime Democratic candidate for state treasurer, and Kirkpatrick Capital Partners sued Rauner in Cook County Circuit Court in October, but until Tuesday, the contents of the lawsuit were entirely redacted. Kirkpatrick is currently co-chief executive of Vistria Group, a private equity firm founded with Martin Nesbitt, a confidant of Barack Obama.
Rauner and Kirkpatrick disagree on how a $67.5 million settlement from other court proceedings was divvied up, according to the unsealed suit.
Kirkpatrick Capital Partners paid $10 million in 2011 for a 20 percent stake in what is now Troy, Mich.-based United Shore Financial Services. The lawsuit says $5 million of that investment came from Rauner, who was elected governor in 2014.
Kirkpatrick relocated to Michigan and served as United Shore’s CEO from 2011 to 2013. The company’s founding family asked him to grow the business and position it for sale, according to the lawsuit. He negotiated a bonus that entitled him to an escalating percentage of the proceeds from the sale of United Shore, the lawsuit says.
“Prior to investing, Rauner understood that if Kirkpatrick was successful in growing United Shore, not only would Rauner receive a significant return on his investment, but Kirkpatrick would also receive a sizeable transaction bonus,” the lawsuit says.
But in May 2013, Kirkpatrick was replaced as CEO with the founder’s son.
Kirkpatrick Capital sued United Shore and Jeffrey and Mathew Ishbia, members of the founding family that remains the majority owner, in 2015. Kirkpatrick himself also sued United Shore regarding the bonus he was promised, according to the lawsuit unsealed Tuesday.
The lawsuit says the parties reached a settlement agreement in June 2016 that redeemed Kirkpatrick Capital’s investment in United Shore and resolved Kirkpatrick’s claim for his bonus. United Shore was to pay $67.5 million to Kirkpatrick Capital over six years.
Rauner claims that none of that money should go toward Kirkpatrick’s personal claim, according to the lawsuit.
The governor’s office did not respond immediately Tuesday to a request for comment. William O’Neil, an attorney representing Kirkpatrick, declined to comment on the suit.
The settlement agreement reflects that there was also an agreement between Kirkpatrick and Kirkpatrick Capital on how the proceeds would be allocated, the suit says. The portion of the settlement that would go to the limited partners in Kirkpatrick Capital’s investment in United Shore was determined after discussions with those investors, including Rauner, the suit says.
Kirkpatrick allegedly kept the governor up to date on the court proceedings and the expected return on Rauner’s investment. The lawsuit alleges Kirkpatrick met with Rauner on May 11, 2015, on the back porch of the governor’s mansion and on the evening of Sept. 15, 2015, at the Chicago Club.
The lawsuit says Rauner did not object to his portion of the settlement proceeds during either of those meetings.
Just before Rauner took office in early 2015, he committed to following “blind trust procedures” to make sure there was no conflict of interest between his personal investments and public duties. Rauner, one of the wealthiest officeholders in state history, granted power of attorney over much of his wealth to an investment adviser.
His aides at the time said establishing a traditional blind trust would have meant that he could not comply with the state’s requirement to annually disclose economic interests. It also would have meant that he relinquished control of his assets to an independent trustee.
Asked in October why he was fighting to keep the Kirkpatrick lawsuit sealed, Rauner again said he doesn’t control his investments.
“So to be clear, my assets, all my investments, are in a trust that I don’t control,” Rauner said. “I did that when I became governor. I can’t comment on any business disputes. That gets settled in its own process.”
Asked if the “blind trust” was the reason the lawsuit had been sealed, Rauner said, “I can’t even tell you why. I mean, I don’t really have much to do with that.”
The suit says that in summer 2017, after Rauner had received his $20 million, he filed a private demand for arbitration before the American Arbitration Association.
In a Friday hearing that was partially closed to the public, Rauner’s lawyers argued the records pertaining to the case should remain sealed, but Judge David Adkins ordered that they be made public. The attorneys representing Kirkpatrick filed an unredacted complaint Tuesday.
The lawsuit says the two other equity investors that put money toward Kirkpatrick Capital’s investment in United Shore have had no issues with the allocation of the $67.5 million.
Kirkpatrick is asking the court to determine that the settlement agreement does not decide how the money should be divvied up. That argument will likely be held in private arbitration.
Kim Geiger contributed.