Gluskin Sheff founders demanding $185 million from company in post-retirement benefits

The co-founders of Gluskin Sheff + Associates Inc. are kept in an unsightly legal struggle with the company, claiming it owes them a staggering $185 million in post-retirement entitlements.

The Toronto-based investment firm revealed on Thursday that it’s involved in a “private arbitration” with Ira Gluskin and Gerald Sheff. Gluskin needs a payment of $75 million, while Sheff is demanding $110 million.

By contrast, the organization said its obligations towards the two founders count just $12.2 million for the most part. It vowed to contest the claim for $185 million and noted that “no supporting evidence” for your amount has been provided to date.

The roots of the dispute go as far back to 2009, when Gluskin Sheff struck an agreement with its namesake founders that would outlay cash throughout their lives after they stepped down from executive roles. The deal entitled all of them to a one time payment of $1.5 million (that was paid this past year), along with fixed annual payments of $250,000. The company described the agreement as effectively a defined benefit pension plan. Gluskin and Sheff were around the board when the pact was struck.

A key part of the agreement is that it included a so-called “additional remedy.” When the founders felt the organization is breaching the deal, they might require company to spend an amount comparable to 90 per cent from the fair market price from the obligations.

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Gluskin and Sheff decided to exercise the “additional remedy” as a way to collect the $185 million.

“Given that the pension payments are for any fixed amount of ($250,000 per year) for each of Mr. Gluskin and Mr. Sheff, plus other benefits, we find it challenging to reconcile towards the ($185 million) claimed,” CIBC World Markets analyst Paul Holden said in a note.

On Thursday, an arbitrator – which has been working on a job for more than six months – ruled the co-founders validly issued notices for that “additional remedy.”



However, the arbitrator didn’t discover that the bonuses paid thus far have breached the agreement. The total amount that should be paid to Gluskin and Sheff will be determined within the second phase from the arbitration, that has not scheduled. The organization vowed to assert legal positions at that stage which may “substantially reduce, or eliminate” the co-founders’ claims if they’re accepted.

“It is just the quantity of payment that’s now under consideration,” Holden said, adding that the payment close to $185 million would be “financially challenging” for that company.

According to Gluskin Sheff, the arbitrator determined the co-founders thought the organization “was in breach of their obligation to pay for bonuses in 2014 to certain of the service-providers focused on them in a level commensurate with other similarly situated employees within the company.”

One source familiar with the arbitration process said that part of the dispute focuses on “the right” of these two founders “to free money management services [on the main city they committed to Gluskin Sheff funds] for the rest of their lives.” The company, that charges clients a base fee plus a performance fee if certain rate of return objectives are obtained, includes a different view. 

Gluskin and Sheff founded the money management firm in 1984. It had been taken public in May 2006, at which time it had $3.75 billion of assets under management. In that initial public offering, the organization sold 7.Two million subordinate voting shares at $18.50 a share. But the company received no proceeds. All of them visited Gluskin and Sheff, who for many years remained the only owners of the multiple voting shares.  After the $133-million IPO, Sheff owned 5.Six million multiple voting shares while Gluskin owned 5.15 million.

In October 2013, the two, either directly or through charitable foundations, sold 6.4 million subordinate voting shares at $19 a share. When that secondary offering closed, all of the company’s multiple voting shares were then changed into subordinate voting shares on the one-for-one basis.

Both Sheff and Gluskin retired in the board in 2013, but Gluskin is constantly on the manage money for the company despite the legal battle.

A message left for Gluskin seeking a comment wasn’t returned.

pkoven@nationalpost.com

bcritchley@nationalpost.com