The ongoing leadership dispute at Silver Star Properties has intensified, as the Houston-based real estate investment trust (REIT) seeks to delay a proxy vote amid accusations against its former CEO, Allen Hartman. The company is currently engaged in a contentious battle over control, with voting scheduled to conclude before an October 6 shareholder meeting.
Silver Star alleges that Hartman is misleading shareholders in an effort to regain his position as CEO. According to a lawsuit filed by the company, Hartman has distributed materials containing claims about executive compensation, company performance, and allegations that Silver Star provided false information to the Securities and Exchange Commission (SEC). The lawsuit aims to correct these statements.
“We have been advised by our proxy solicitor that some shareholders recently changed their votes from Silver Star to Hartman based on his unfounded accusations,” said Silver Star Director Jack Tompkins in an affidavit included with the court filing.
The company has asked a Maryland District Court to postpone the vote until December 31, citing the need for a “cooling-off period.” Although headquartered in Houston, Silver Star is incorporated in Maryland, which is why the suit was filed there.
Hartman responded by criticizing the move: “By pushing to delay the vote, Silver Star is seeking to extend their control, continue collecting salaries and fees, and further destroy shareholder value for their own benefit at the expense of the Company and its investors.”
He also described the filing as part of Silver Star’s “ongoing effort to illegally reject the Company’s bylaws, which require an annual shareholder meeting.”
This request for another delay follows a previous postponement of the shareholder meeting from August to October. At that time, Silver Star told shareholders it needed more time because Hartman was “creating chaos” and wanted them to have “full and accurate information before casting your vote.”
The dispute marks another chapter in Hartman’s separation from Silver Star Properties, which he founded in 2009. In 2023, he was removed by the board over allegations of nepotism and mismanagement. These issues allegedly led to a default on a $259 million commercial mortgage-backed securities loan from Goldman Sachs in October 2023. Later that year, trustees sued Hartman for $50 million for alleged fraud and self-dealing. The SEC began investigating Silver Star in February 2024.
Hartman denies all allegations against him.
As financial pressures mount on Silver Star Properties, Gerald Haddock has led efforts to sell off much of its office property portfolio and shift toward self-storage assets. This transition has been challenging; one subsidiary filed for bankruptcy last year, and last month three office properties faced foreclosure related to a $57.8 million loan from Benefit Street Partners. Despite these setbacks, Silver Star has acquired new self-storage properties such as a $26.5 million facility purchased in Delray Beach, Florida.
Further background on these developments can be found at https://therealdeal.com/houston/2024/02/22/sec-launches-investigation-into-silver-star-properties/, detailing how federal regulators launched an investigation into Silver Star Properties earlier this year. Information on Haddock’s strategy for turning around the firm is available at https://therealdeal.com/texas/2024/03/14/how-gerald-haddock-plans-to-dig-silver-star-properties-out-of-a-hole/. Additional context about asset sales and bankruptcy proceedings involving subsidiaries can be read at https://therealdeal.com/houston/2023/11/27/silver-star-subsidiary-seeks-protection-amid-sell-off-of-commercial-portfolio/.
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