New York Nightclub Verboten Has Been Accused By Investors of Fraud and Mismanagement
A group of shareholders are pursuing legal action against the Brooklyn venue with the intent to overthrow its current management.
A group of investors in Brooklyn nightclub Verboten has accused the club's founders and operating partners—longtime New York promoters Jen Schiffer and her husband John Perez—of fraud and mismanagement, according to emails and documents obtained by THUMP.
Verboten began as a roving party held in lofts and warehouses all over New York City. Schiffer and Perez, who told the New York Times that they "got engaged in a nightclub in Ibiza," opened the brick-and-mortar club in March 2014, with Burning Man favorite Damian Lazarus and Venezuelan techno duo Fur Coat as headliners. The two-room, 10,000-square-foot club was heralded by the media (including THUMP) as a harbinger of Brooklyn's current nightlife renaissance, and established itself—and the surrounding Williamsburg neighborhood—as a destination for punters seeking some of the world's best house and techno DJs.
In a letter dated January 7, 2016—addressed to "Friends of Verboten," and sent to an undisclosed group of investors and employees—a man named Brian Edward McGuinness states that he and 13 other investors have agreed to take legal action against Schiffer and Perez. According to McGuinness, the conflict began when Schiffer and Perez failed to provide investors with information about the club's finances and operations, raising suspicion as to how their investments were being spent.
"Many of the investors have been forced to organize over the last several months due to what was initially simply a lack of transparency into the operations and financial performance of the business by the operating partners," explains McGuinness in the letter.
According to McGuinness, investors became concerned over time that something fishy was going on with how the club's funds were being handled. "As we dug into this," McGuinness continues in the letter, "we began to perceive financial irregularities regarding the club and have been able to verify that significant mismanagement and outright fraud have occurred (and continue to occur) by at least one of the club's operating partners who is responsible for the day-to-day operations of the club."
According to his letter, financial mismanagement on the part of the operating partners has put the business in a precarious position, and some of Verboten's staff have not been paid portions of their salaries due to an overdue payroll—a fact that THUMP was able to verify by speaking with several of the club's current and former employees, who've requested anonymity due to the delicacy of the situation.
"At this point, despite the success and promise of the Verboten brand, the business's financial problems are so significant that the investors and financial creditors risk losing most or all of their investment," wrote McGuinness. "Worse still, the employees who have helped build this business stand to lose their jobs as well as their back pay from a severely overdue payroll."
In pursuing legal action, he writes, the investors' goal is to "remove [Schiffer and Perez], put in place partially new management, infuse the business with fresh financial capital and create a more positive work culture."
In a separate letter dated January 13, 2016 and addressed to "Fellow Plaintiffs," another investor, Darrin Morda, elaborates on the allegations that the group of investors are bringing against Schiffer and Perez.
These include, according to Morda's letter, "[Concealing] revenues equaling hundreds of thousands of dollars [...] by rerouting deposits from Resident Advisor away from the club and into other accounts they own"; withdrawing nearly $400,000 to fund events at other venues and making fraudulent entries in Verboten's ledger to make it appear as though these expenditures were related to the club's operations; charging the club for personal expenses, including their apartment rent and vacations; failing to pay State Sales Taxes; and failing to pay withholding taxes for foreign DJs, among others.
Morda told THUMP that the investors have been requesting meetings with Schiffer and Perez since at least October 2015, but they have been unsuccessful in getting her to respond in any constructive manner—hence why they are planning to take the issue to arbitration.
This is not the first time that Morda and his business partner Tom Beaulieu—with whom he owned the now-defunct Boston nightclub Rise—have taken legal action against Verboten. In October 2014, they successfully filed a petition in King's County Superior Court, winning access to some of the club's financial records. According to Morda, he and Beaulieu then reached a settlement with Schiffer agreeing to buy their shares back. "After our continued questioning of [the numbers] we were seeing, we settled that lawsuit with Jen offering to buy back our shares in four installments," Morda told THUMP. "She executed the first installment but didn't pay the rest."
In addition to investing in the business, both Morda and Beaulieu held positions at the club starting in February 2014, handling private bookings and operational/construction/payroll activities, respectively. As of September 2014, they no longer work for Verboten, though the nature of their falling out with the venue's operating partners is a point of disagreement.
Morda claims he and Beaulieu were let go because they started questioning the club's vanishing revenues and financial statements. "I believe that we were terminated because we became very suspicious about the ways that many things were being handled at [the club] and because we began to ask questions about the books and records," wrote Morda in his 2014 affidavit.
Schiffer, for her part, explained in a phone interview with THUMP that Morda and Beaulieu were not fired from their jobs at the club; rather, they "couldn't perform and walked off." "These are two disgruntled employees causing a brouhaha in public to tip their case, help themselves, and hurt me," she said.
Other investors have likewise engaged in legal tangos with Verboten, including John Finn, who in December 2014 also filed a petition requesting access to the club's books and records. "She produced a box of papers that were irrelevant to anything I was requesting," Finn told THUMP. It was a total joke. I put [my case] on hold and joined the group action. I figured there is power in numbers."
In truth, some of the allegations the investors are bringing against Schiffer might be complicated by the terms set forth in the operating agreement signed by both sides. THUMP has obtained a copy of this agreement because it was an exhibit in one of the legal proceedings filed by the investors.
The agreement says that the main function of the company which McGuinness, Morda, and Beaulieu invested in, is to "own and operate a nightclub and/or restaurant business." It goes on to say that this purpose includes activities determined to be in the "best interest" of the company, or "deem[ed] to be necessary, advisable, or convenient to promote or conduct the business"—which could feasibly include activities like booking Verboten-branded events at other venues and festivals like StageOne.
When asked to respond to the allegations brought against her and Verboten, Jen Schiffer told THUMP that she is "not at liberty to discuss an ongoing labor dispute." However, she did she she "vehemently denies" all charges of wrongdoing brought against her and Perez. "Not only are [these accusations] untrue, they also contain intentionally misleading information—it's both libel and slander," she said. Schiffer added that Morda and the other investors had violated their confidentiality agreement by speaking to the press, and suggested that they have ulterior motives. "It's their intention to hurt the company, DJs, and the scene as a whole," Schiffer said.
Schiffer stressed that Verboten is a family-run operation with a long ties to New York City's music community, and that bad press would significantly hurt their revenue.
"I have a tenured history of employing and supporting people," she said. "I run a small family business and have been here for a decade. I spent my whole life dreaming of building a nightclub. I'm not saying we never had a bad night or bad employee, [but] I've never been more proud of anything in my life."
Michelle Lhooq is THUMP's Features Editor. Follow her on Twitter.