The electronic dance music powerhouse SFX Entertainment has made big EDM news in the past years, but now it looks like things are only getting uglier for the EDM conglomerate.
SFX Entertainment Inc., a producer of electronic dance music events, was sued by three men alleging they helped create the company and were defrauded of their share of it, worth more than $100 million.
Paolo Moreno, Lawrence Vavra, and Gabriel Moreno said in a complaint filed today in federal court in Los Angeles that they were “frozen out” by SFX Chief Executive Officer Robert Sillerman and didn’t get their promised founders’ shares after using their industry connections and resources to help SFX make key acquisitions.
Sources say SFX Entertainment CEO Robert Sillerman cut out early partners who had helped him consolidate the EDM industry by buying out 7/8 other key EDM businesses.
The lawsuit against SFX is listed as:
PAOLO MORENO, LAWRENCE VAVRA, and GABRIEL MORENO, Plaintiffs.
SFX ENTERTAINMENT, INC., ROBERT F.X. SILLERMAN, and SHELDON FINKEL, Defendants.
“You’ll make more than you can imagine.”
That’s what music and entertainment mogul Robert Sillerman promised in a January 2012 email to Paolo Moreno, a promoter in the electronic dance music (EDM) industry after hearing of his business plan to buy venues around the world and create a powerhouse in the fast-growing live music genre. At the time, Moreno was proposing that he and his team would bring contacts and on the ground knowledge to consolidate the then-fragmented EDM industry, while Sillerman, the wealthy creator of LiveNation, would provide financing to fund a venture.
The result of the partnership, SFX Entertainment, was listed on the Nasdaq in late 2014 at an over $1 billion valuation and generated $354 million in 2014 revenue. However, instead of making large sums of money, Moreno and two co-plaintiffs, Lawrence Varva and Gabriel Moreno, say they were cut out and never received a dime from Sillerman or SFX, despite helping to identify seven of the eight principal assets SFX listed when going public nearly two years ago. Shortly after went public, Moreno and his colleagues sued Sillerman and SFX; a suit the company quickly called “without merit” and asked to be dismissed.
However, in a ruling on July 29, California District Judge Ronald S.W. Lew allowed all of Moreno’s claims against Sillerman and SFX, including breach of contract and fraud, to move to trial. The judge also rejected all motions to dismiss, citing evidence of a partnership in SFX’s earliest days, including emails where Sillerman promised Moreno “we’re fine on these deals. Let’s go,” and “let’s get it done and have at it. We’re ready to go,” in addition to specific negotiations on salary, bonuses and millions of so-called ‘founders shares.’ (See ruling below).
Judge Lew concluded last week that a trove of email correspondence between Moreno and Sillerman is “sufficient to create a genuine dispute of material fact as to whether an express joint venture/partnership agreement was formed. Plaintiffs’ evidence also establishes a genuine dispute of material fact as to whether an implied joint venture/partnership agreement was formed.”
The plaintiffs are seeking a $100 million award in damages. The trial is slated to begin on October 6 in Los Angeles federal court.
“That SFX and Mr. Sillerman would try to deny its partnership with our clients, especially in light of the extensive documentary evidence proving that a deal was made, is appalling”
said John C. Hueston, a representative for plaintiffs at Hueston Hennigan LLP, in a statement provided to FORBES.
SFX, through a spokesperson, declined to comment when reached by FORBES.
Here is the official $100 Million SFX lawsuit below.