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Trial set in one of two lawsuits tied to fallen sports empire

On Thursday, sports lender and adviser Galatioto Sports Partners’ lawsuit against KPMG is scheduled to go to trial in New York State Supreme Court, Courtroom 208. Two floors above, in Courtroom 442, a lawsuit brought against lender RBS Financial could go to trial perhaps by the end of the year.

What’s the connection? Both stem from the financial wreckage five years ago of Texas billionaire Tom Hicks’ sports empire and follow the 2010 bankruptcy sale of the Texas Rangers and the controversial disposition of Liverpool FC later that same year.

The quick sale of EPL club Liverpool is among the legal challenges playing out in court.
Photo by: GETTY IMAGES
Neither lawsuit directly targets Hicks, though. Instead, in the case this week, his auditor, KPMG, is the target; in the other case, it’s RBS, for allegedly orchestrating a below-market sale of the famed EPL club Liverpool.

In its case, Galatioto Sports Partners contends that in making a loan to Hicks, it relied on KPMG’s audit and assurances of the stability of Hicks Sports Group.

“Nowhere in the motion papers does KPMG dispute that … Hicks Sports breached the terms of the credit agreement, or that KPMG made misrepresentations regarding Hicks Sports financial circumstances when it issued unqualified audits and certifications,” Judge Saliann Scarpulla wrote in a June opinion denying KPMG’s move to dismiss the case of Galatioto Sports Partners, which is seeking its lost $67 million loan and punitive damages.

When it imploded, Hicks Sports Group served as a red flag in an era of high debt and aggressive ambitions for executives who had assembled vast team holdings. More than half a billion dollars of debt hung on Hicks Sports Group, and it has emerged in the discovery of the KPMG trial that the sports holding company ultimately was incurring annual losses of eight figures.

Hicks Sports Group at its height owned the Dallas Stars, Texas Rangers, half of Liverpool and the Mesquite Championship Rodeo.

When Hicks and his partner in Liverpool, George Gillett, could no longer afford debt payments, lender RBS took over and sold the team to the owners of the Boston Red Sox (the entity known at the time as New England Sports Ventures, since renamed Fenway Sports Group). Hicks and Gillett tried to block the sale in a British court, contending much as the current case does now that RBS had schemed to sell the team to a preferred buyer at a price just high enough for only the Scottish lender to recoup its debts. While the British court declined to allow Hicks and Gillett to bring their case, the U.S. case, since it was filed against RBS four years ago this month, has remained firmly wedged in the New York State Supreme Court. The judge overseeing the case, Eileen Bransten, twice rejected RBS motions to dismiss, and New York’s highest court also spurned an appeal by RBS of one of those rejections.

The case against RBS is brought by Mill Financial, which lent to Gillett for his equity in Liverpool and was part of a group of three banks (RBS and Wells Fargo the other two) that signed an agreement in 2009 to manage the default on the soccer club’s debt. Mill contends it sought to buy Liverpool but that RBS, without informing the lender, sold the team at a discounted price.

Springfield, Va.-based Mill is seeking its $75 million loan, interest and punitive damages. None of the loan was paid back.

In a statement filed earlier this month, Mill and RBS notified Bransten that the parties had completed all necessary discovery and asked for a bench trial.

This week’s KPMG trial is set to go before a jury.

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