Sunday, June 22, 2008

Preds investor Del Biaggio didn't arouse suspicion

By BRAD SCHRADE • Staff Writer (Tennessean) • June 22, 2008 The entry of William J. "Boots" Del Biaggio III into Nashville's hockey life, in retrospect, should have always seemed a little too good to be true. A rich California venture capitalist and philanthropist with supposedly deep pockets, Del Biaggio swooped in last year to work with locals to save hockey in Music City. But as the threads of that feel-good narrative have unraveled over the past month under the stress of lawsuits, a federal probe and a bankruptcy — all centered on Del Biaggio — a happy ending is on hold. The sudden problems brought on by his financial implosion have focused unwanted attention on Metro's renegotiated lease agreement at Sommet Center, in which the city pledged millions more in tax dollars to help keep the Predators in Nashville. They also have raised questions about the level of scrutiny the city performed on the new owners, particularly Del Biaggio — the lone major investor from out of town. A series of lawsuits alleges he, with the help of an employee at an investment firm, secured millions in loans fraudulently. "The question is, 'What could you have done?'" asked Larry Thrailkill, the attorney who negotiated the new lease agreement with the team on Metro's behalf. Metro is just one of several entities — including banks, the team and a list of creditors — who were unaware of Del Biaggio's alleged scheme, he said. Court documents claim fraud and deceit, portraying the would-be financial titan as a man stretched and borrowing millions last fall — against assets they say he didn't have — in an effort to secure his 27 percent stake in the Predators. Del Biaggio's attorney on Friday said his client was unavailable for comment. A trustee in the bankruptcy case was appointed late in the week, and an initial meeting with creditors is scheduled for July 8 to begin the process of dividing up his assets. His one-fourth share of the team is at stake. The Metro government and the team's majority local ownership group, led by David Freeman, are both hoping to replace the $9.8 million Del Biaggio pledged as part of his guarantee to the city. Del Biaggio didn't have to actually turn over that amount to the city, but the terms of the city's agreement with the new owners required him and others to have set amounts available. He said he had money Del Biaggio's $9.8 million was to be part of a $31.5 million guarantee put up by the new ownership group as collateral to the city in the event the team left town or failed to live up to the other terms of the deal. As part of the lease the city renegotiated with the new Predators owners, the city required each owner to have an accountant vouch for his net worth. The goal was to ensure the owners had the money they said they had, while also shielding their personal financial records from public review. But the city allowed the owners to choose their own accountants. The one who vouched for Del Biaggio, Jacqueline Singh of Burbank, Calif., was once an executive at the investment firm Del Biaggio co-founded in the 1990s, Sand Hill Capital. The letter signed by Singh, dated Dec. 21, vouched that his net worth was at least twice his $9.8 million guarantee. Del Biaggio reinforced this statement just days after the Metro Council approved changes to the lease, when, on April 22, he signed a guarantee saying his net worth was twice the guarantee. Public records from Metro do not indicate that the city required any other documentation or verification of the new owners' financial status, according to a review by The Tennessean. "If an insider with a financial institution is willing to falsely certify the assets of a person with that institution, it's almost impossible for anybody to find that out," Thrailkill said. "That's what's alleged here. If you look at all the loans with Boots out there, they said they demanded to have collateral with that loan." Few officials met him Few officials with Metro government and its Sports Authority, which serves as the Predators' landlords at Sommet Center, ever met or talked directly to Del Biaggio, although his involvement was crucial to the team's purchase. Mayor Karl Dean met with Del Biaggio once, in late October. Sports Authority board member Kevin Lavender, a former state banking commissioner, recalled meeting Del Biaggio in passing at a Predators game, but said the California businessman was more into the hockey game than small talk. Dean's meeting with him took place after the mayor's office received a call from Freeman saying that Del Biaggio was in town for a Predators game, that he would be part of the investment group and that Freeman wanted him to meet the mayor. The mayor's office had been hearing rumors that Del Biaggio was getting involved in the deal to buy the Predators from owner Craig Leipold so he could eventually move the team to Kansas City. At the time, Del Biaggio had an agreement with the Kansas City arena to bring an NHL team there. Dean made it clear the city's interest was in the long-term viability of hockey here, according to Greg Hinote, Dean's deputy mayor, who was in the meeting. Hinote said he didn't recall much about Del Biaggio, except that he was quiet. Del Biaggio "didn't say much," Hinote recalled on Friday. "He made a point to us he was invested in the transaction and he hoped it worked. He said he was keeping all his options open." The Dean administration supported a renegotiated lease agreement with the team's new owners based on three major points, Hinote said: the personal guarantees of each owner, the commitment given by local ownership to make the team work here, and the penalties the city was negotiating in the event the team tried to leave within five years. The administration was comfortable with the fact the local owners would be in control of the team, and Del Biaggio held a minority stake. "At some point we got comfortable with the fact the local ownership group would have adequate time to make this work," Hinote said. 'No red flags' In light of Del Biaggio's financial problems, Metro Finance Director Rich Riebeling said, it's easy to second-guess the city's actions, but at the time it relied on the NHL and the bank that lent the team money, CIT Group, to ensure the owners were financially viable. "You've got to operate on some measure of good faith or you won't get anything done," Riebeling said. "At the time, we took care of it in a reasonable manner." The NHL's background check is quite thorough. The league, which has approval rights on who buys an NHL team, typically checks the finances and character of a potential owner. The checks are designed to avoid the type of situation the Predators and Del Biaggio face. The league has undergone four bankruptcies of its franchises — Los Angeles, Pittsburgh, Ottawa and Buffalo — in the past two decades. None of those towns wound up losing their teams. The Predators' situation is the first of its kind involving a minority ownership. In the other cases, bankruptcy trustees worked with the NHL to find a replacement owner, relying on the league to help with leads to potential buyers. It's unclear whether Del Biaggio underwent the tough scrutiny of a background check in 2002 when he bought a small stake in the San Jose Sharks. The league confirmed that he underwent a background check for the Predators purchase. "You do all the things you can do to verify certain things," said Bill Daly, NHL deputy commissioner. "You go through the checks. The bottom line is, no red flags came up."

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