May 15, 2024

777 remain confident their takeover of crisis club Everton will proceed, and Josimar can reveal the source of funding for the purchase. But the man behind that money is accused of fraud in an ongoing US lawsuit.

By Paul Brown and Philippe Auclair

WHEN they are not speaking for public consumption, senior figures at 777 have been known to describe the Premier League fit and proper person test as “a PR exercise.”

And they remain confident of receiving approval for their attempted purchase of Everton by Christmas, with lawyers already beginning to exchange documents related to the transaction.

But they got a taste this weekend of the full powers available to the regulators of English football when the Merseyside club were hit with a ten-point deduction by an Independent Commission for breaching profit and sustainability rules.

Everton are also now facing expensive compensation claims from rival clubs related to the verdict of that Commission that they gained a sporting advantage from their overspend, adding another potential hurdle for 777 to overcome.

Yet the Miami firm continues to press ahead with its takeover, and the common line from the company is that confidence remains high it can get the deal over the line.

How can this be, when 777 Partners has been unable to provide the audited accounts requested by the Financial Conduct Authority, has missed payroll to its own staff, been forced to renegotiate rather than repay debts at two of its clubs – Genoa and Hertha Berlin, and has just been hit with a credit rating downgrade at it’s Bermuda-based reinsurance arm, which is now “divesting the majority of its affiliated holdings”?

Josimar can reveal that this confidence comes at least in part from the fact that 777 expects to tap a familiar source of funding for the purchase of Everton – in particular, a familiar source of funding from the insurance industry.

Earlier in our investigation, we revealed how 777 had racked up debts of 338 million  US dollars to New York insurer A-CAP, run by Kenneth King.

Now, we can reveal that 350 million euro for the purchase of Everton has already been provided to 777 by another insurance company called Haymarket – and that this figure could rise to 500 million euro if necessary.

Incorporated under the laws of the state of Nebraska in 2015, Haymarket is a reinsurer of certain fixed annuity and deposit fund contracts. And according to its 2019 Annual Statement (below), its “Ultimate Controlling Person” is… Kenneth King.

A spokesman for 777 refused to deny that Haymarket is providing funding for the Everton deal when approached for comment by Josimar.

Josimar has also reached out to Mr King himself several times over the last few weeks through various mediums to ask why his companies continue to invest in 777 when he is already owed such large amounts by them. All queries, including to his lawyer, have so far been met with silence.

His backing, however, remains absolutely crucial to the company, because Josimar has been told by internal sources that 777 has struggled to raise external capital for some time. A spokesman for the company described as “patently false” one claim that 777 has failed with every capital raise it has attempted since August 2022, but we understand that a capital raise for the groups’ football operations in the Autumn of 2022 was unsuccessful, and that since that point, the only funding pledged to this part of the business has come directly from companies tied to King.

Josimar has also been told that 777 regard the purchase of Everton as the key to its future – because owning a Premier League team would increase the total value of its football portfolio, make it easier to attract outside investment, and give it access to the club’s new stadium at Bramley Moore Dock, which remains under construction. 777 believe the stadium project has a 1 billion euro equity value. Whether any of this helps to attract the kind of investors 777 needs remains to be seen, but what is clear is that insurance company money has long been a key plank of the group’s funding.

In a 2021 pitch seen by Josimar and first published this week by Semafor , 777 promised returns to such investors of 40 percent – more than twice what the average private-equity fund produces, and four times what banks do. The pitch explained how 65 percent of policyholder’s money would be invested in riskier things like private-equity funds and asset-backed securities.

It is unclear whether any of 777’s investors have ever been able to realise returns as high as 40 percent. And the recent credit ratings downgrade of the reinsurance company 777 Re in Bermuda will almost certainly make it harder and more expensive for the group to raise money.

777 claim that most of the assets held across their 60 different independent operating companies carry an A rating and above. It is also the company’s position that the downgrade ​​does not reflect the solvency of 777 Re and that it will not have any material impact on the funding of transactions like the purchase of Everton.

But, in announcing its downgrade, ratings agency AM Best flagged the fact that 777 Re’s balance sheet was “weak” and that its concerns “are heightened by the uncertainty regarding the financial condition of 777 Partners as it has not provided audited financial statements for the past two years.”

AM Best also announced that “the company has been placed under review with negative implications pending the completions of its plans to improve risk-adjusted capitalisation materially by divesting the majority of its affiliated holdings.” In layman’s terms, the company is engaged in a fire-sale of assets.

None of this, however, has put Mr King off. In fact, King himself seems to have given his approval for 777’s business strategy as he sat in on a steering committee meeting discussing it in June of this year.

At that meeting, the sale of two portfolio companies, Ensurem and Sutton National, was discussed. A presentation was also made showing how 777 hoped to make total savings of 446 million dollars through the first quarter of 2024 by reducing headcount, selling assets, and divesting portfolio companies. 777 had by this point already reduced its workforce by 4 percent, with further cuts to come which it was hoped would lead to a 24 percent reduction in salary expenses. Mr King raised no objections to this plan.

But Josimar can reveal that AM Best last week placed the credit ratings of Sutton National Group’s members under review with negative implications. It explained that there is “significant pressure on the ratings driven by 777 Partners, which has not provided AM Best with audited financial statements for the last two years”, and that these ratings will remain under review until a restructure of Sutton National, designed to “remove the group’s direct affiliation with 777”, is complete.

Josimar can also reveal that Mr King has some problems of his own to contend with when it comes to the insurance industry.

King, the founder and Chief Executive Officer of A-CAP, along with that company’s Executive Vice President Daniel Cathcart, are named as defendants in an ongoing civil lawsuit in the USA.

In the complaint, it is alleged that King, Cathcart and a large group of other defendants, engaged in a complex and massive fraud against Great Western, a Utah-domiciled insurer, resulting in losses for that company exceeding 135 million dollars.

Great Western alleges that during the course of this fraud, the defendants maintained numerous interconnections with one another, without the company’s knowledge, that allowed the defendants to loot Great Western’s assets and engage in self dealing.

The alleged scheme was perpetrated via a reinsurance company, and investment managers controlled by the defendants, and the complaint asserts that “due to Defendants’ misconduct, breaches of fiduciary duty, and fraudulent activity, Great Western has sustained significant economic losses as alleged in greater detail below. Great Western is entitled to compensatory damages, trebled damages, as well as special and punitive damages.”

King and his co-defendants deny the allegations, and in a legal document filed in September 2020, they respond to a series of questions put to them as part of Great Western’s complaint, which was originally filed in December 2018.

This document contains a stock response given by the group over 150 times which reads as follows: “To the extent a response is required … Defendants lack knowledge or information sufficient to form a belief as to the truth of the allegations.”

The case remains ongoing. As does an unrelated case brought against Wander and his 777 managing partner Steven Pasko in Delaware. Earlier this month, 777 lost a bid to get that case – which alleges the company cheated the sellers of an aviation leasing business it acquired – thrown out.

Vice Chancellor Morgan T Zurn dismissed claims of fraud made against the pair over a lack of specifics. But the lawsuit will move forward over claims of a breach of contract and fiduciary duty, with Zurn stating in her 40-page opinion that: “Pasko and Wander have not presented any cogent or compelling argument on which to dismiss the unjust enrichment claim against them.” A breach of fiduciary duty occurs when someone who has a responsibility to act in the interests of another person fails to do so, and penalties can be severe.

Both men deny any wrongdoing. But all of this will raise concerns among Everton fans about whether 777 Partners are suitable owners for their club. Toffees fans deserve better times. They do not deserve for their club to come unstuck. These are uncertain times on the blue half of Merseyside, and they will remain uncertain until football’s regulators make a decision on whether 777 are “fit and proper”. On Friday 17 November, an independent commission issued Everton with a draconian punishment for wrongdoing. But the final call on the takeover is a decision which will have an even bigger impact on the club’s future than a ten-point penalty.

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