Winston & Strawn and one of its partners have been accused of allegedly prioritizing the personal interests of financial services startup GloriFi’s founder over those of the business. The complaint, which seeks more than $1.7 billion in damages, was filed by the trustee in the Northern District of Texas as part of the GloriFi bankruptcy.
In the complaint, trustee Scott Seidel alleges the law firm and its Houston managing partner Michael Blankenship committed legal malpractice and breached their fiduciary duty.
A spokesperson for Winston & Strawn called the allegations meritless and states that the firm’s lawyers “acted at all times in GloriFi’s best interests, met the highest professional standards, and is in no way responsible for the company’s business failure.”
The trustee claims GloriFi’s speculative valuation of $1.7 billion dropped to zero in a matter of months due to Winston & Strawn’s “malfeasance.”
“The facts of this case make for a John Grisham novel about the dangers in, and destruction caused by, conflicts of interest in BigLaw. Sadly, for GloriFi and its legion of stakeholders and unpaid creditors, this is no fiction novel,” the complaint reads.
GloriFi hired Winston & Strawn in 2021 to guide a proposed merger with a special-purpose acquisition company to go public. The company marketed itself as an “anti-woke” financial services option for a conservative customer base and aimed to serve as a wall against “cancel culture” and liberal institutions.
In July 2022, GloriFi announced a plan to go public by combining with Southlake-based blank-check company DHC Acquisition Corp. The agreement required GloriFi to secure $60 million by Sept. 30, 2022, which it failed to do.
DHC officially terminated the deal in January 2023, and GloriFi filed for Chapter 7 bankruptcy in February 2023. Almost a year later, DHC announced a new merger with Wyoming-based Brand Engagement Network for approximately $377 million that closed in March 2024.
The complaint states Winston & Strawn betrayed fiduciary duties owed to GloriFi by “appeasing and protecting” Toby Neugebauer, GloriFi’s founder, CEO and majority shareholder. Neugebauer is an oil and gas investor who also co-founded the Houston private equity firm Quantum Energy Partners LP.
According to the complaint, Winston & Strawn allegedly orchestrated various “schemes” designed to benefit Neugebauer that caused GloriFi’s existing investors — such as co-founder of PayPal Peter Thiel, venture capitalist Joe Lonsdale, CEO and founder of Citadel Ken Griffin and former presidential candidate Vivek Ramaswamy — to lose confidence in the company, resulting in an inability to close the de-SPAC transaction and go public at a surmised valuation of $1.7 billion.
The complaint alleges that Winston & Strawn also assisted Neugebauer in the “development and execution of a scheme to (i) remove independent directors who stood in the way of Neugebauer’s self-dealing; (ii) stack GloriFi’s Board with Neugebauer’s long-time friends and business partners, who would rubberstamp whatever Neugebauer wanted; and (iii) amend GloriFi’s governing documents to force through Neugebauer’s self-interested transactions.”
“Winston Strawn sought to please Neugebauer – an alleged billionaire whom Winston Strawn (and, particularly, Blankenship) clearly viewed as a cash cow for current and future billings and perks,” the complaint alleges. It goes on to claim that “Neugebauer set into motion a self-dealing scheme to improve his economic position (to the detriment of GloriFi’s many other stakeholders) and put a stranglehold on his control over the Company” that the law firm “consistently worked to appease.”
In its statement, Winston & Strawn said it “will vigorously defend against these meritless claims, including the fanciful, billion-dollar lost value claim for a company that never opened its doors for business.”
“Winston & Strawn has now become the twelfth target of bankruptcy litigation arising from the collapse of GloriFi, whose publicly documented financial troubles led to its failure,” the law firm stated. “This latest lawsuit is being financed and controlled by a former creditor of GloriFi, who purportedly acquired the right to sue through a bankruptcy auction process. The lawsuits and threats of lawsuits have targeted a host of parties who interacted with GloriFi, including other law firms and now Winston, in a broad search for deep pockets to blame for GloriFi’s internal business problems and ultimate bankruptcy.”
The lawsuit was filed with Judge Michelle Larson, who approved a settlement allowing GloriFi Acquisitions to pursue potential claims in the name of the trustee earlier this year. That has allowed Seidel to transfer GloriFi’s assets and potential causes of action to GloriFi Acquisitions. In January, Judge Larson denied a motion to convert the bankruptcy from liquidation to Chapter 11.
Special counsel for the trustee includes Iacuone McAllister Potter managing partner Chase Potter, co-founders Joshua Iacuone and Greg McAllister and attorney Anna Richardson.
The case is Scott M. Seidel v. Winston & Strawn LLP; and Michael Blankenship, 23-30246.