Two senior executives from the recently shut down Swarthmore Group Inc. sued the investment firm and its founder, James E. Nevels, demanding a total of more than $22 million. Officers say they are owed because of how the 31-year-old Philadelphia investment firm closed on short notice Thursday, idling staff, closing client accounts and, according to them, ignoring a potential new owner.
Former senior portfolio managers Steven Schweitzer and William Scott Mero sued Nevels and Swarthmore in state court in New York. They allege Nevels hired them in early 2021 as “partners”, promised them $359,000 in annual salary and bonuses, and owner status as Nevels’ expected successors, then left them stranded. when he rejected plans to improve his struggling business and shut it down instead.
READ MORE: Investment firm Philly Swarthmore Group, which manages $1.5 billion, is closing its doors
Both men are seeking $1.2 million each for ‘driving violation’ in case company failed to pay promised salary, bonuses, severance, benefits and stock; at least $5 million each for “fraudulent misrepresentation”, accusing Nevels of recruiting them but failing to follow through on his promised succession plan and investments in building the business; and an additional $5 million or more each for “breach of fiduciary duty” or failure to act in the best interests of all Swarthmore owners, including themselves.
“At this time, my client has no comment,” said Douglas G. Leney, a bankruptcy attorney at Archer & Greiner who represented Swarthmore, in an email response to The Inquirer. He also said he had not seen the trial. The civil suit was filed by attorneys Jonathan Marc Davidoff and Danielle Shayne Shapero.
Swarthmore, who at one time managed millions of dollars for the Pennsylvania State Retirement System (SERS) and three Philadelphia County suburban pensions, lost that business but still invested a total of $1. $.5 billion in bonds and stocks for Philadelphia airports and other government and private customers, when it last reported assets to the Securities and Exchange Commission, as of March 31.
The firm announced its status as a rare “registered minority-owned investment adviser”. A seasoned investment professional who was used to raising assets in an industry of companies run mostly by white executives, Nevels, 68, who is African American, was drafted into a string of prominent board positions. administration of companies and governments.
A graduate of Bucknell University and the University of Pennsylvania’s law and business schools, Nevels is a director of Pittsburgh-based Alcoa Corp., America’s largest aluminum company, and the packaging giant Atlanta-based WestRock, which makes Lancaster corrugated containers and pill boxes. boxes in South Plainfield, NJ, among other locations. He is also chairman of the Business Council for International Understanding, a pro-trade business and policy group founded by the late US President Dwight Eisenhower.
Nevels was appointed by former President George W. Bush as Chairman of the Federal Pension Benefit Guaranty Corp. and also chaired Hershey Co., the Federal Reserve Bank of Philadelphia, and the former state school boards that controlled the Philadelphia and Chester-Upland school. districts before the districts are returned to local control. Nevels is an Adjunct Professor of Risk Management at Texas A&M University.
But that “impressive resume” didn’t save the company, according to the lawsuit. Instead, Nevels became so “distracted” by outside interests that he was “dangerously disconnected from the operations and management of Swarthmore”.
Schweitzer and Mero allege that the founder “sought to mislead and conceal the true reasons for the closure of Swarthmore, which was Nevels’ gross negligence and selfish management of the business”.
The ex-managers say in the lawsuit that they each had more than 25 years of experience on Wall Street before being recruited by Philadelphia-based Diversified Search two years ago for ‘executive roles’ at Swarthmore .
They said Nevels had agreed to make the pair co-owners by giving them shares totaling around one-seventh of the company, which he said was worth around half a million dollars, over the next two years, plus 359 $000 a year each in salary and bonuses, plus health care benefits and tax compensation.
Swarthmore announced in February 2021 that Schweitzer and Mero had become “partners” in the firm. Their addition “positions the company for long-term growth” and to “pass the baton” to its future leaders, according to Swarthmore’s press release.
The lawsuit says the pair found the company in “utter disarray”, with client funds invested in securities that did not meet investor guidelines and record-keeping technology so poorly implemented that the company would not could sometimes not complete transactions for customers. The newcomers have recruited staff and urged better practices, but allege Nevels fought to prevent the changes and “reprimanded” their efforts.
The lawsuit says Nevels did not respond when staff told him an unnamed potential acquirer was interested in taking over the business, after Nevels told employees on June 14 that he planned to close on June 30.
According to the lawsuit, Nevels gave employees two explanations for why he closed Swarthmore. On June 14, he told staff he was closing “solely due to the deterioration of his and his wife’s health, and that the two should immediately move into an assisted living facility.” But in a June 27 memo to staff, he blamed “the decline of the business, linked to dramatic changes in the investment industry and economic conditions.”
Ultimately, the lawsuit alleges that “Nevels unilaterally decided to close Swarthmore for his personal reasons” and “failed to honor promises” he made to his partners.