BGC Directors Must Face Lawsuit Over Purchase of Cantor Unit

(Bloomberg) -- Directors of broker BGC Partners Inc. must face lawsuits from investors who say the company’s $875 million purchase of a real-estate lender was at an inflated price and was a sweetheart deal for BGC’s former parent company, Cantor Fitzgerald LP, and its billionaire chairman.

Delaware Chancery Judge Andre Bouchard concluded the investors had enough evidence of ties between three BGC directors and Cantor Chairman Howard Lutnick to move the case forward. BGC, which was spun off from Cantor in 2004, acquired Berkeley Point Financial LLC from Cantor Commercial Real Estate Co. in 2017. Lutnick is also BGC’s chairman.

Allegations brought by two pension funds raised legitimate questions about the directors’ “independence” from Lutnick, Bouchard said in a 40-page ruling refusing to dismiss the case. Directors William Moran, Linda Bell and Stephen Curwood were tapped to evaluate the buyout for the rest of BGC’s five-member board, which included Lutnick.

BGC folded Berkeley Point, which focuses its lending on commercial and multifamily projects tied to government-sponsored programs, into its Newmark Knight Frank real estate unit. The 14,000-employee firm is one of the world’s largest commercial real estate services companies, according to its website.

Karen Laureano-Rikardsen, a spokeswoman for the BGC directors, declined to comment on the judge’s ruling.

Lawyers for Detroit-based Roofers Local 149 Pension Fund, along with other pension funds, accuse Lutnick, who also serves as BGC’s chief executive officer, of engineering the Berkeley acquisition to “misappropriate value” from the spinoff’s shareholders. Lutnick said his interest in the deal precluded him from deciding on its fairness.

Longstanding Ties

They contend Lutnick turned to Bell, Moran and Curwood as the deal’s evaluators because of his longstanding ties with the trio, which created conflicts of interests and tainted their appraisal of the deal. The funds allege Lutnick was motivated by his 60% economic interest in Berkeley Point, which far exceeded his 13.8% stake in BGC.

Lawyers for BGC directors argued the price to acquire Berkeley Point was strategic and fair and the funds’ case should be tossed out. “This is a far cry from bad faith,” Joseph DE Simone, one of the directors’ lawyers, told Bouchard at a hearing last year. “The plaintiffs have failed to show that any defendants were controlled by Mr. Lutnick.”

Bouchard rejected the company’s motion to throw out the suit, noting the three directors have served on boards of Cantor units with Lutnick and some have ties to the billionaire through Haverford College outside Philadelphia. Lutnick, an alumnus who served on the school’s board of managers, has given the school more than $65 million over the years.

Those ties “create a reason to doubt” that Bell, Moran and Curwood could impartially evaluate the value of the Berkeley Point deal, Bouchard said.

The case is In re BGC Partners Inc. Derivative Litigation, No. 2018-0722, Delaware Chancery Court (Wilmington).

--With assistance from Leslie Pappas.

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Steve Stroth

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