Belinda Alleges Frank's `Fanciful Schemes' Eroded Stronach Family Empire

Belinda Stronach, the chairman and president of The Stronach Group (TSG) and the primary defendant in a bombshell October lawsuit initiated by her father, Frank Stronach, has chosen the week of the racing company's highest-profile race, the GI Pegasus World Cup, to fire back with her own allegations of financial mismanagement by her dad that she claims cost the family empire some $850 million (CDN), “with hundreds of millions of this amount likely being irretrievably lost.”

In a statement of defense and countersuit filed Jan. 21 in the Ontario Superior Court of Justice, Belinda Stronach's legal team is arguing that, “The conflict that underlies this lawsuit is a fundamental disagreement over the proper test to be applied to managing the business and affairs of TSG. Frank Stronach firmly believes that, having been the principal creator of the family wealth, he may direct the business and affairs of TSG as he sees fit. Belinda and other TSG management firmly believe that their obligation is to manage the business and affairs of TSG in a prudent manner that is in the best interests of TSG and its stakeholders.”

The 217 pages of court documents obtained by TDN paint a picture of ill-advised “passion projects” initiated by Frank Stronach, the 86-year-old family patriarch, including $55-million (CDN) for two bronze statues of a 12-story high Pegasus horse. One statue is the signature focal point of Gulfstream Park, while the other has never been publicly displayed and remains in storage in China.

“Over time…Frank began to engage in activities, many unauthorized, which placed the business and assets of TSG at considerable risk,” Belinda Stronach's filing contends. “While Frank had great success in creating one of the world's largest automotive suppliers, he has also experienced significant failures in nearly all of his other non-auto parts ventures and his political affairs. [Frank's] lawsuit is an attempt to force TSG to fund Frank's imprudent, and, in some cases, fanciful schemes to the detriment of TSG and its stakeholders.

“Belinda has engaged in no unlawful conduct,” the counter-claim asserts. “To the contrary, she has taken steps to rectify the irregular affairs of TSG she inherited from Frank.”

The rags-to-riches rise of the Austrian-born Frank Stronach is well known within the racing industry, and he has been honored with numerous awards during his ascendancy from a small-scale Ontario horse owner and breeder to a global Thoroughbred power player. Over the course of six decades, he concurrently enjoyed commercial success as an auto-parts magnate, and several of his early racing holdings were intertwined with that firm, Magna International, until it filed for bankruptcy protection in 2009.

Frank Stronach, in conjunction with his wife, Elfriede, initially filed an Oct. 1, 2018, lawsuit alleging “a complete break-down” of relationships within the Stronach family as a result of years of strife and power struggles within TSG. The suit sought the removal of his daughter from all corporate officer and trustee positions related to the Stronach empire, and also demanded a jury trial to award $540 million (CDN) in compensation and damages.

Separately, Andrew Stronach, 50, who is Belinda's brother, filed his own lawsuit Nov. 1 alleging similar TSG malfeasance as a result of his sister's “serious misconduct.”

In her executive capacity, Belinda Stronach, 52, oversees (among 247 other TSG holdings), Santa Anita Park, Golden Gate Fields, Gulfstream Park, Laurel Park, Pimlico Race Course, and Portland Meadows.

Alon Ossip, the chief executive of TSG, was named as a co-defendant in the initial lawsuit, and two of Frank Stronach's grandchildren–Nicole and Frank Walker–were named as co-defendants. They are Belinda Stronach's children, and both served as trustees of family assets from 2013-17, according to court documents.

All of those co-defendants also filed statements of defense of Monday that largely disputed Frank Stronach's allegations.

Ossip's Jan. 21 defense statement alleges that Frank Stronach's irresponsible actions took a cumulative toll over the past decade.

“Over the past number of years, Frank's behavior became increasingly erratic, as reflected in part in his increasingly disruptive interventions in TSG's racing and gaming business (among others),” Ossip's statement claims. “Frank demonstrated a wholesale disregard for corporate decision-making within TSG, diverted company assets to his projects without regard for their economic viability, and made improper and unethical decisions in relation to third parties and employees. As a result, management was repeatedly forced to engage in damage control.”

Belinda, 52, claims in her counter-suit that she is “entitled to” nearly $33 million (CDN) in funds owed by her father, and that she should remain in full control of TSG.

Frank Stronach's attorneys could not be reached for comment. But The Globe and Mail of Toronto published a statement from his spokesperson, Dennis Mills (a former politician and Magna executive), that said, “I am in deep pain for Frank, Belinda and the family, because Frank spent his career building wealth and ensuring that wealth would be preserved. I remain optimistic that with love, in coming days, these issues can be resolved in a way that benefit both the family and the business.”

Racetrack & gaming financials

TSG operates in four primary business segments: Racing and gaming (R&G), real estate development, agriculture, and the breeding/training/racing of Thoroughbreds (BTR).

Although much of the family squabbling detailed in the original suit and subsequent counter-claims focus on issues involving control of Stronach family trust funds and other forms of business, Belinda Stronach's Jan. 21 court documentation alleges that TSG's racing and gaming businesses have become financially robust under her leadership.

“TSG's most profitable and cash-generating business segment is currently R&G,” the court filings allege. “The R&G and real estate development segments represent the source of TSG's growth and are the drivers of wealth creation and preservation for the Beneficiaries.

“Under Belinda and Alon's leadership…since 2013, R&G has more than doubled its revenue and is generating significant positive cash flow…. TSG's R&G segment has thrived under Belinda and Alon's leadership. Its revenue doubled in a five-year period, increasing from $555 million (US) in 2012 to over $1.1 billion (US) in 2017. Its market share of handle (i.e. bets) increased from 15% in 2012 to 28% in 2017. TSG now hosts over 2 million guests a year at its R&G properties, and processes more than $5.4 million (US) in daily wagering.

“The R&G segment is currently the primary source of TSG's growth and driver of wealth creation and preservation for the current and future generations of Stronach family beneficiaries,” the court filings contend. “However, these R&G businesses were not always so profitable…. While the R&G businesses were still owned by [Magna] and managed by Frank, they were virtually all money-losing enterprises, which eventually resulted in [Magna] filing for Chapter 11 bankruptcy. Frank's tenure as CEO of [Magna] was marked by a feverish acquisition spree, a corresponding increase in debt, and high management turnover.”

Fast-forwarding a decade, Belinda Stronach's Jan. 21 filings allege that her father's “litigation is the result of a clash between TSG's professionally-developed, sound business strategies intended to create and maintain wealth for future generations of the Stronach family, and Frank's refusal to accede to these sound business strategies in the context of projects that he cares deeply about but that have proven to be non-viable or are underperforming.”

Belinda Stronach's statement of defense says that contrary to her father's assertions that he was to assume de facto legal control of TSG upon his return from a brief foray into Austrian politics in 2014, he was instead allowed to pursue limited interests “in the agricultural and BTR segments of TSG, as well as certain of the related real estate development ventures in Florida.” The understanding was that Frank would be involved in high-level strategic planning but would not have any signing authority.

“On a limited number of non-R&G projects, TSG management gave Frank the ability to direct and commit resources in the early stage of his 'vision' for the agricultural businesses,” the court documents allege. “By 2017, however, the excessive spending forecasted by Frank necessitated greater oversight and control by TSG management.”

Despite the alleged need to keep close watch over her father's ventures, Belinda Stronach's court documents still generally depict a solid forward-looking financial footing for TSG's R&G businesses.

“Together, TSG management has made horse racing attractive to a new generation of fans, modernized facilities, and enhanced guest experiences into a more expansive entertainment and hospitality experience,” the court documentation alleges.

“Management has also taken significant steps in the professionalization of the business, including by introducing human resources policies and employee engagement initiatives. These steps combined have led to R&G's newfound professionalization and profitability, and are in stark contrast to Frank's management of R&G at [Magna], where experienced managers and expert advice were routinely rejected by him,” the filing states.

But TSG's breeding, training and racing businesses that have been under Frank Stronach's guidance have allegedly not fared as well.

“He has overseen the acquisition of an unnecessarily large horse inventory and allowed the BTR businesses to incur significant losses,” Belinda Stronach's filing argues. “Since 2010, the BTR businesses have incurred $156.9 million (US) in operating losses. In 2018, TSG management replaced the general manager for the BTR business and is now working through a restructuring plan to reduce losses and horse inventory.”

The filings further allege that “Frank has engaged in bullying, verbal abuse and made threats toward TSG employees… In addition, Frank has regularly attempted to direct TSG employees contrary to their instructions from TSG management, often exploiting long-standing personal relationships to do so. This has created uncertainty and confusion among employees and has had a negative effect on morale.”

The court filings assert that, “Eventually a number of steps were required to contain the harm being caused by Frank's behavior and desire to pursue his passion projects, often at a frenetic pace. In each case, several attempts were made to attempt to reason with Frank to restrain his activities. An independent third party acceptable to Frank and his counsel was retained to assist in these efforts. All such steps were taken with great respect for Frank and attempts were made to protect his reputation and the TSG brand.”

Belinda's attempted settlement

“By mid-2018, it was clear that Frank (with the support of Elfriede and Andrew) had a very different view from Belinda and other TSG management as to how the business should be operated,” Belinda Stronach's statement alleges.

“In an attempt to create family peace and respond to their wishes,” Belinda Stronach, in August 2018, presented a proposal to all family members for the division of family assets, according to court documents.

In short, Belinda Stronach proposed controlling the racing and gaming assets, while Andrew Stronach (whose own lawsuit more or less sided with his father's) would get control over agricultural and non-racing assets, plus cash paid out over a period of time.

“Belinda also proposed that as a next step in determining whether to proceed with the proposal, the family obtain an independent valuation of the assets to assist family members in determining whether the proposal was fair,” the court papers contend.

But, the court filings allege, “despite the fact that this valuation process was proposed as non-binding, the proposal went unanswered.”

In general, Canadian law requires defendants to file a statement of defense within 30 days of the filing of a lawsuit. That time frame can be amended in some cases, especially if both parties agree to an extension. Belinda Stronach and the other co-defendants took 113 days to file theirs, which occurred five days prior to the company's signature global race, Saturday's Pegasus World Cup at Gulfstream Park.

Whether or not the timing of the defense statement will have an effect on TSG's image or business during Pegasus week is open to debate. But on a personal family level, one line in the court filing makes it clear that the Stronachs themselves, despite the family turmoil, are not financially suffering.

“All members of the Stronach family, and especially Frank, have been able to live in a manner that reflects the family's substantial wealth,' Belinda Stronach's filing asserts.