EMM Group, the partnership that owns and operates Abe and Arthur's, SL, SL East, Lexington Brass, and the red hot Catch, was hit with a investor lawsuit yesterday in federal court. The suit was brought by Gregory Struck and accuses EMM and its principal partners Eugene Remm, Mark Birnbaum, and Michael Hirschtein, of fraudulently misleading investors, misappropriating funds from Abe and Arthur's and SL to use on Catch, and breaching their respective fiduciary duties to their investors. Struck is also claiming that Franklin Becker, the executive chef of both Abe and Arthur's and Catch, could verify that investor money was being spent on Catch instead of being distributed.
Struck's lawsuit claims that in 2008 Remm and Birnbaum were desperate to move on from just being the operators of Tenjune and actually own their own place. They had identified the space (the former Lotus), but to pull it off, they needed to raise over $5 million dollars. But with the economy about to fall off a cliff and no prior track record as owners, they were having trouble doing so. Along came Struck, a South African former real estate agent who was willing to put up over $1 million dollars in exchange for 13 shares in the new corporation. Once his investment was secure, Struck says EMM was then able to raise the rest of the money and get the place open.
Struck says that the investment seemed to be a smart one at first, as he began receiving regular checks after the restaurant and club opened and had got almost $700,000 after one full year. The check amounts ominously began getting smaller and then stopped arriving with any frequency right around the time in 2011 that the Catch project was announced.
Struck also accuses EMM of acting in bad faith towards him personally. He claims that he had made clear to EMM that his goal was to own and operate his own venues some day, but when it became apparent that Struck was about to strike out on his own at a nearby location and had tried to recruit an EMM employee, EMM threw Struck out of the company for violating the terms and conditions of his investor agreement. He also claims that they never returned the remaining balance of his investment ($300,000), even though they had promised to do so.
Struck is asking for damages and compensation for the fair market value that was divested from Sutol. He also asks for his interest in the company to be restored and that Birnbaum and Remm be removed as fiduciaries of the company and be replaced by a receiver.
It's important to remember that limited partners, especially in restaurants and nightclubs routinely get screwed over because they have no real authority in either the operation of the space or voting authority. As a part owner of the Yankees once said, “nothing is as limited as being a limited partner of George [Steinbrenner's].” The same applies here. It's also interesting to think that this lawsuit was part of the reason that EMM will be opening a Catch in Miami instead of Abe and Arthur's as planned, and why the rumored expansion of the brand through New York has been dropped for other, jazzier concepts.