Usually when a director resigns from a board of a public company, the company puts out a boilerplate filing saying that the director is not resigning as a result of any disagreements with management. However, in rare cases there are fireworks. Pursuant to Item 5.02 (a) of Form 8-K, a disagreement leading to director resignation generally triggers disclosure obligations. The company is required to, among other things, describe the disagreement and file correspondence related to the resignation as an exhibit to the 8-K. Companies seeking obfuscation often file this info as part of an 8-K with a headline about something else.
One such example is First Capital Investment Corporation, a BDC formerly known as Freedom Capital Corporation. The advisor to this BDC is an affiliate of First Capital Real Estate, a group most known for taking over the old United Realty REIT (former executives of which have had some recent drama of their own), and for being chronically delinquent on public filings for the various entities it sponsors.
On March 14, First Capital Investment Corporation filed an 8-K announcing, per the accompanying press release, that “StHealth Capital Partners Acquires FCIC Advisors and Announces New Strategic Direction and Management for First Capital Investment Corporation,” which is no small event in itself. However, further down in the filing, it notes that Dr. Bob Froehlich has resigned as chairman of the board from First Capital Investment Corp. Exhibit 17.1 to the filing is the resignation letter from the former director. In it, we learn he had some disputes with management’s alleged lack of transparency, record of destroying shareholder wealth, and sudden style drift.
I’ll avoid going into the details of the disputes. Dr. Bob Froehlich explained it all quite colorfully through, shall we say, a unique metaphor involving infidelity, retirement savings, and red-headed spouses:
While it may be confusing for some of our shareholders to completely understand what is happening perhaps this analogy might help them to understand what is going on. It would be like getting divorce from your spouse because they destroyed 80% of your retirement savings by spending it on having an affair. (Similar to the wealth destruction of the advisor here by investing in bad investments). Now your spouse instead of just walking away comes up with a new plan. Your spouse says why don’t you give me that remaining 20% that I didn’t destroy in the retirement savings you have and I will pick the new spouse for you. In other words you divorce me and I get to tell you who to marry and you pay me for it. And better yet, even though you know I don’t like anyone with red hair you inform me that I now have to marry someone with red hair. That is how silly this is! You would never agree to that, however, that is exactly what is going on here. The advisor instead of getting fired (divorced) comes up with a plan to find a new advisor (finding us a new spouse) and then wants paid for this transaction all the while our investors are underwater and have yet to receive a dividend. As the final icing on the cake the advisor tells us that they have decided to turn this into a healthcare BDC (the same as giving us that red haired spouse that we didn’t want).
You can read Dr. Froehlich’s entire letter here. Management’s response to Dr. Froehlich’s resignation letter is here.
Dr. Froehlich has a history of speaking his mind, and turning SEC filings into a literary art. He was previously the only director to make a strong public stand against egregious self-dealing and affiliated transactions within the AR Global complex.
We’ll continue to monitor First Capital Investment Corp. filings for further developments.