Two executives and partners of Corona del Mar money manager Street Asset Management LLC have left the firm in a bitter split.
Ray Pentz, former chief executive and manager at Street Asset Management, and Kurt Stabel, its chief investment officer, left the firm in early September. The dispute between the departed executives and the two remaining Street Asset partners is set to go to arbitration, according to Chriss Street, the firm’s chairman and namesake partner.
The fissure comes amid an audit by the U.S. Department of Labor of a pension plan administered and overseen by Chriss Street and Don Sheetz, the other partner and president of Street Asset.
Pentz and Stabel said they resigned fearing fallout on Street Asset from the Labor Department pension plan audit. Street Asset is not a subject of the probe. In a letter to a friend and client, Pentz wrote that he “was concerned that if the DOL took a look at Street Asset Management in the course of their investigation, my reputation would be at stake.”
Street and Sheetz characterized the pension audit as routine and said the former executives left two months after first learning of the probe. Street said the executives are disgruntled because he wouldn’t accede to their request to be bought out for $250,000 each after they’d been with the firm for 10 months. The four men formed Street Asset in October 2000.
The two remaining partners raised the ante last week by getting the Newport Beach police involved in investigating the alleged photocopying of firm documents by the departed executives, according to Chriss Street.
Chriss Street has a reputation as a workout artist, with a knack for bankruptcy situations.
Street Asset has been ranked among the top-performing in the nation by Nelson Investment Manager Database.
In the mid-1990s, Chriss Street drew attention for teaming up with John Moorlach to blow the whistle on the investment practices of then-Orange County treasurer Robert Citron. Their warnings were ignored and the county bankruptcy followed.
Chriss Street is a trustee of The Fruehauf Trailer Corp. Retirement Plan, a now-inactive plan that formerly served workers at Fruehauf Trailer Corp. In 1997, Wabash National Corp. acquired the assets of Fruehauf Trailer, a maker of truck trailers.
While the Fruehauf retirement plan no longer is active, the pension fund is. Sheetz is chairman of the pension plan’s administrative committee.
In a June 20 letter, the Labor Department notified the Fruehauf plan’s administrative committee of its intention to audit the plan.
Labor spokesman Michael Shimizu confirmed the department is auditing the pension plan but declined to say why.
“They (Labor) don’t typically target one issue,” said Sherrie Boutwell, a partner at Irvine law firm Boutwell Fay & Fabricant LLP who is familiar with the federal Employee Retirement Income Security Act. “When they investigate, they generally want to review all of the ERISA compliance issues.”
In his letter, Pentz said that when he learned about the Labor audit, “I offered to buy out Chriss and Don and if they refused I asked them to buy me out.”
According to Chriss Street, the partners were looking for $250,000 each for their stakes in the firm, an amount he called unreasonable. Street Asset offered Pentz and Stabel $1,000 each as part of a buyout process outlined in the firm’s operating agreement.
Chriss Street also said the Labor audit of the Fruehauf plan was expected because the department routinely investigates whenever there is a major change in a pension plan. Last year, Labor completed an audit of the Jacksonville Retire-ment Plan, which merged into the Fruehauf plan in 1998, with no negative findings.
Street and Sheetz came to the Business Journal’s office late last week after they learned that the two departed executives had spoken to the paper. Previously, the remaining partners had refused to comment on this story, citing non-disclosure passages in Street Asset’s operating agreement.
“It is obvious that the confidentiality has been thrown out in the open, so we would like to respond,” Street said.
Pentz told the Business Journal that he and Stabel were concerned about any possible conflict stemming from the involvement of Street and Sheetz as officials of both the Fruehauf pension and Street Asset, which shares an office with the retirement plan.
“The perception of wearing two hats by Street and Sheetz could have been very damaging,” Pentz said.
Chriss Street dismissed the notion of any conflict. He said he and his related firms have abided by all rules and regulations and have taken legal advice on all issues.
Chriss Street oversees two other companies involved with the Fruehauf pension: Pension Transfer Corp. and End of the Road Trust.
Part of the Fruehauf pension fund’s money is managed by Street Asset, which counts the pension as its largest corporate account. Chriss Street said that while the Fruehauf pension is the largest corporate account for Street Asset, the firm handles a minority of the fund’s assets.
As trustee, Chriss Street said he has turned around the Fruehauf plan since late-1996. When Street was appointed by the court to oversee the plan, it was underfunded by $5.5 million, he said. At last count, Street said, the plan is “substantially” overfunded.
The Labor audit also comes after the Fruehauf pension fund’s purchase of shares in Dorsey Holdings Corp., which acquired the assets of Dorsey Trailers Corp., a bankrupt Elba, Ala.-based trailer maker.
Dorsey’s assets were bought in an open auction for around $4.6 million in June. Sheetz handled the Fruehauf fund’s transaction, while Chriss Street handled Dorsey Holdings’ buy of Dorsey Trailers’ assets.
“The losing bidder, having been familiar with Chriss’ association with Fruehauf may have reported the purchase of Dorsey by Fruehauf to the Department of Labor as a possible violation of (federal) guidelines,” Pentz said.
Street dismissed the significance of the Dorsey deal to the Labor probe of Fruehauf pension. But if the deal prompted the probe, the department could be looking at whether it was a prudent investment, said Harley Bjelland, an OC attorney familiar with retirement funds.
“What will be important is the prudence that the committee took to make this investment,” Bjelland said.
Bjelland said he knows Chriss Street professionally and that Street appears to be a kind of person who knows the rules.
Street said he doesn’t know if the Dorsey transaction will be part of the audit. He said he believes the deal will meet the test of being a prudent investment. Dorsey’s assets are worth more than $15 million, he said, or at least three times what was paid at auction.
“It is not illegal to buy assets from a bankrupt company, but it has to meet the standards of prudent investment,” pension lawyer Boutwell said. “Most retirement plans do not invest in assets of a bankrupt company. But it could have been a wise thing, depending on the individual investment.”
Attorneys familiar with pension plans said in almost half of the cases that Labor investigates, officials find something wrong and levy some sort of penalty on the trustee or the administrative committee.
“There are a number of things that could happen,” Boutwell said. “There are two potential liabilities for someone who doesn’t fulfill their duties when they are the plan trustee: If it causes the plan any losses, they are (personally) liable to repay the plan. If it is a prohibited transaction, then there are excise taxes that the person is liable for.” n
