Ace Hotel Accuses Ken Friedman of Financial Fraud in New $5M Suit

Ken Friedman
Photo by JP Yim/Getty Images for Band of Outsiders

A company behind the Ace Hotel in New York filed a suit last week claiming restaurateur Ken Friedman cooked the books at Michelin-starred the Breslin and John Dory Oyster Bar, restaurants that he ran with chef April Bloomfield.

They are seeking at least $5 million in damages, plus other potential damages and legal fees — claiming that Friedman misrepresented profits. Bloomfield is not named in the complaint, though she was an owner of Biergarten LLC, the company that’s named in the suit and managed the restaurants.

According to the complaint, Friedman allegedly fudged the accounting so the restaurants looked more profitable than they actually were. The hotel company claims that he did it so losses wouldn’t trigger a part of the contract where it could kick the restaurants out if the businesses weren’t making enough money. Biergarten LLC also allegedly continued to take “substantial management fees” despite the decline in sales, the suit claims, which the hotel would have opposed if it had known the true financial situation.

The hotel further alleges that mismanagement led to a slew of other financial missteps — like double charging for services, using the restaurants’ LLC to fund expenses at Friedman’s other businesses, and leaving the restaurants with nearly $2 million in back-owed rent.

It was “willful misfeasance, bad faith and/or gross negligence, and/or with reckless disregard of its obligations,” the suit claims.

Friedman declined to comment. The Ace Hotel spokesperson and its attorney did not immediately respond to request for comment. Update: Ace Hotel brands clarified that it is not involved in the suit. Ace operates this location of the hotel, which was developed by GFI Hospitality.

Bloomfield now runs the Breslin and John Dory Oyster Bar without Friedman, who she split with earlier this year following the sexual misconduct allegations against the famed restaurateur. She did not immediately respond to request for comment.

In 2009, the Ace Hotel partnered with Biergarten LLC to form a company called Friedfield Breslin LLC for the restaurants, according to the suit. The hotel side ponied up initial capital and the space, while Biergarten LLC managed the restaurant. In 2010, the Breslin opened, and John Dory followed.

The agreement delineated that the Ace New York would receive an annual “return on investment” from the restaurants: 9.5 percent of net sales, as permitted by “available cash flow.” That “available cash flow” meant net sales minus operating expenses and the minimum management fee paid to Biergarten LLC. As part of the deal, Biergarten would get a management fee of either $250,000 or 4.5 percent of all gross sales of the restaurants plus 2.25 percent of gross sales of the event space — whichever was higher.

The catch was that after the third year of operation, the restaurants had to pay the hotel at least $500,000 a year in that “return on investment” money, otherwise Biergarten’s contract could get nixed early, according to the suit.

In initial years, the restaurant made good money. The suit says that the Breslin and John Dory had an average of $2.7 million in available cash flow from 2012 to 2014, with more than $3 million in 2012. But in 2015, that number dropped to $1.1 million, and by 2017, it hit a negative $65,956, the suit says.

In 2016, the hotel hired an auditor, who raised several “red flags,” according to the suit, including a lack of documentation. Such issues were “indications of fraudulent conduct in a restaurant’s operations,” the suit claims. By 2017, the same “material weakness” in accounting showed up, the suit alleges, revealing “very serious wrongdoing” in accounting.

Eventually, the issue was discovered, according to the suit: Operating expenses are supposed to include a payment to a “capital reserve account,” essentially a savings account that would receive 4 percent of gross revenues every month.

But the hotel alleges that Biergarten — at the direction of Friedman — stopped paying into that capital reserve account, thus making the profits seem higher than they actually were, according to the suit. The hotel company was “unaware of the extent of the Company’s [Friedfield Breslin] financial decline, and was unaware of the triggering of its right to terminate the agreement with Biergarten and Friedman,” the suit says.

Despite the losses, Friedman allegedly continued to send money from the restaurants to Biergarten as part of the operator management fee — including nearly $650,000 in 2017 and nearly $700,000 in 2016, according to the suit. This money was “unearned,” the suit claims.

In February 2018, the hotel ended the contract with Friedman and Biergarten LLC, the suit says, and by June, Bloomfield announced that she’d be running the restaurants without Friedman.

Since then, the suit claims that Friedman allegedly defaulted on paying a variety of groups that provided services to the restaurant, including staffers, food vendors, and insurance companies — moves “adversely impacting and interfering” with the hotel’s ability to “forge new relationships” to run a restaurant.

It’s been quite the year for Friedman. Last December, the Times published bombshell allegations of the restaurateur’s prolific sexual misconduct, from public groping to requesting nudes from staffers and unwanted kissing. (He said some of the incidents did not happen “as described.”) The following March, the star butchers of his UWS restaurant White Gold left, and by summer, his longtime business partner Bloomfield, who faced her own criticisms for allegedly turning a blind eye to Friedman’s behavior, split as well.

This lawsuit is not the first issue suggesting financial bumps for the restaurateur. White Gold Butchers received a notice from the landlord in August saying that it owed nearly $60,000 in rent, and a small farm upstate sued shortly after for unpaid invoices.

And in a piece in New York magazine’s the Cut published Sunday, chefs Gabrielle Hamilton and Ashley Merriman — who almost partnered up with Friedman at the Spotted Pig — said that the Pig is “hemorrhaging” cash. The sticking point for the split, the duo said, was that Friedman wanted to keep earning the manager’s salary despite not being on-site.

Comments

What a surprise.

wow, didn’t see that coming

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