Preston Hollow Capital LLC is seeking monetary damages of at least $100 million in its second round of litigation accusing Nuveen Investments of engaging in an illegal campaign to block its access to capital and deals.
The Dallas-based private lender
The Department of Justice is apparently also following the case, but it remains unclear whether federal prosecutors are considering bringing charges. Sources close to the matter have said DOJ has spoken with individuals involved in the proceedings.
PHC previously notified the court to the fact that a “governmental entity” was interested in the recordings. Court documents showed that the PHC had contacted the unidentified entity about the litigation.
“This case arises from a series of threatening, anticompetitive and defamatory communications made about Preston Hollow” by Nuveen’s head of municipals John Miller and his team “to the leading broker-dealers in the municipal finance market, and to Preston Hollow’s primary lender,” reads the amended complaint.
“The impact of Nuveen’s campaign of defamation against Preston Hollow on Preston Hollow’s reputation and its ability to originate and execute new municipal bond transactions has caused Preston Hollow to suffer damages in the past, and such damages in all reasonable likelihood will continue into the future, including but not limited to lost profits,” it reads.
Nuveen did not immediately provide a comment on the amended complaint.
The ball is now in Nuveen’s court to file a response and perhaps a motion to dismiss. It may seek to back up its accusations caught on the recordings accusing PHC of predatory lending practices.
PHC had not sought monetary compensation in the initial suit and the judge concluded that the court would have difficulty enforcing some form of an injunction against future interference and that his memorandum of opinion would likely serve as a deterrent to Nuveen’s further use of illegal tactics. The two firms were held responsible for their own fees and expenses.
PHC seeks to make its case of the impact of the alleged defamation. Since its founding in 2014 with $110 million of capital that grew to $1.7 billion in 2018, its transaction originations steadily rose, increasing by 37% in 2017 and 34% in 2018. Nuveen is a global asset manager, with municipal bonds forming a subset of its various asset classes with fixed-income assets under management of $150 billion.
Some broker-dealers appeared in the recorded calls willing to bow to Nuveen’s demands while others did not.
When PHC filed the case in late February it cracked the window open on the cutthroat competition in the high-yield municipal market. Its accusations sparked debate on the accusations of whether strong-arm tactics broke the law, broker-dealer complicity and resistance, and what constitutes pricing fairness. The case dragged top-tier firms into the fray along with top banking officials who were subpoenaed.
During the Chancery Court proceedings last year, Nuveen had argued all’s fair in a competitive marketplace and worked to recast what PHC called illegal tactics to damage its business as simple reminders to banks and broker-dealers of their wish to be among the first to see deals. The judge rejected those arguments.
The Delaware Chancery Court last month concluded that Nuveen intentionally interfered with Preston Hollow’s business relations but Nuveen won’t face any sanctions beyond a stinging assessment of its tactics from the judge.
Vice Chancellor Sam Glasscock III had declined to rule on an anti-competitive claim and previously dismissed the defamation claim over technical reasons saying it required a jury. Chancery Court cases are non-juried and decided by the judge alone. PHC last year filed the defamation claim in the Superior Court but it remained on hold pending the outcome of the original case before Glasscock. With the outcome now final, PHC filed the amended complaint.
The new complaint seeks compensatory damages of no less than $100 million and punitive damages to be determined by a jury as well as court costs and attorney fees.
The amended complaint lays out the evidence from recorded calls presented during the Chancery Court proceedings, naming some Nuveen officials that previously were referenced as unnamed individuals, broker-dealers and banks.
Preston Hollow lays out the evidence presented at trial from the recordings that it believes proves its defamation accusation as Miller and other Nuveen officials accused PHC of “predatory lending practices,” suggested it was a risky counterparty, accused the firm of fleecing Roosevelt in one call, and questioned a lack of protective covenants in deals and rushing transactions, and claims PHC took advantage of unsophisticated borrowers. Nuveen officials also told one bank that “unethical practices” had caught the attention of states’ attorney generals who had contacted PHC.
PHC said it never received any such contact. “These statements were either intentionally false or manifested reckless disregard for the truth in order to harm Preston Hollow’s business” and made without “any good faith basis,” the complaint reads.
PHC seeks to make its case of the impact of the alleged defamation. Since its founding in 2014 with $110 million of capital that grew to $1.7 billion in 2018, its transaction originations steadily rose, increasing by 37% in 2017 and 34% in 2018. Nuveen is a global asset manager, with municipal bonds forming a subset of its various asset classes with fixed-income assets under management of $150 billion.
Nuveen’s alleged defamation escalated throughout 2018 and PHC claims it reached a peak as the firm secured transactions for Roosevelt University’s which directly placed a $200 million issue and Howard University’s $32 million issue in late 2018.
“Having missed out on the opportunity to invest in the university bonds, Miller and his staff at Nuveen engaged in a campaign of slander and intimidation to coerce and prevent broker-dealers from doing business with Preston Hollow,” the complaint charges.
Since then the pipeline has slowed.
“Preston Hollow saw a drastic reduction in inquiries and interaction with broker-dealers beginning in January 2019. This loss of business has caused significant economic harm to Preston Hollow,” the complaint reads. “Most of the leading broker-dealers in the industry either have ceased working with Preston Hollow on 100% placements or will do so only if Preston Hollow originates the transactions,” PHC said in the complaint.
The firm had also been in “discussions” with Goldman Sachs on at least 12 transactions but since the alleged defamation “all discussions with Goldman” ceased. Goldman Sachs declined to comment.
BACKGROUND
The original case wrapped up with Glasscock’s 59-page April 9 opinion. “I find that Nuveen used threats and lies in a successful attempt to damage the plaintiff in its business relationships,” Glasscock wrote. “The record, taken as a whole, shows consistent, systematic efforts by Nuveen to shut down Preston Hollow’s ability to continue to do business.”
But the court concluded the relief sought by PHC — banning Nuveen from future interference — was not available and he also declined to rule on a count alleging anti-trust violations under New York State’s Donnelly Act on legal reasons. Two other counts were previously dismissed, including the defamation claim that is the subject of the amended complaint before the Superior Court.
“We are pleased the court did not grant any injunction against Nuveen, and we continue to fully support John Miller and his entire team, who can continue delivering strong investment performance on behalf of our clients,” Nuveen spokeswoman Jessica Greaney said in a statement last month. “However, we respectfully disagree with the court’s finding that Nuveen tortiously interfered with Preston Hollow’s business. John and his team remain motivated by a desire to protect client investments while also supporting a fully transparent municipal-bond market for all participants.”
Preston Hollow said the opinion gave it the vindication it had sought and will help make its case with prospective banking and issuer clients. “Preston Hollow Capital is gratified by the decision of the Delaware Chancery Court, which saw precisely what we saw: Nuveen’s campaign of anti-competitive, untruthful, unfair and destructive conduct in the marketplace,” PHC chairman and Chief Executive Jim Thompson said in statement.
