The legal fallout surrounding former Uncle Nearest CFO Michael Senzaki entered a new phase this month.
Newly submitted court documents from July 10 reveal the whiskey maker’s court-appointed receiver fired the company’s founders last month and accused its primary lender of failing to detect warning signs tied to the former finance chief’s alleged misconduct.
Separate court filings from a few days prior also reveal document subpoenas from federal authorities, adding another layer to a case that has expanded since the founders sued Senzaki in January.
Court-appointed Phillip Young Jr. terminated founder and CEO Fawn Weaver’s employment and ended her co-founder and husband Keith Weaver’s involvement with the company effective June 1. In his latest quarterly report, Young said the decision reduced confusion among employees and vendors.
The receiver also disclosed document subpoenas from the Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York. The filing does not identify the focus of either inquiry, and neither agency has publicly accused the company or any individual of wrongdoing.
The developments come after the Weavers sued Senzaki earlier this year, alleging he manipulated financial records and concealed liabilities while overseeing the company’s finances. Their complaint also accuses him of inflating inventory values and forging corporate documents. Senzaki has denied the allegations.
Governance questions continue to grow
Receiver reports described missing financial records and uncertainty surrounding the company’s historical accounting data.
The filings raised questions about financial controls and executive oversight, as Young now alleges those weaknesses allowed Senzaki to submit unauthorized borrowing requests and control much of the company’s communication with its lender without sufficient independent oversight.
Since then, the receiver has moved deeper into the company’s operations. According to the report, Uncle Nearest has entered into a letter of intent to sell substantially all of its operating assets to an unidentified buyer. The receiver could seek approval through the existing receivership proceedings or through a prepackaged Chapter 11 bankruptcy.
Young also reported that Uncle Nearest continues to operate at a loss despite workforce reductions and other cost-cutting measures. The receivership is pursuing sales of noncore assets, including property in Martha’s Vineyard and a vineyard in Cognac, France.
The removal of the Weavers represents the clearest leadership change since the receivership began.
“While this decision was not made lightly, it has resulted in significantly less confusion among employees and vendors, and has made business operations significantly smoother,” Young wrote in the filing.
The Weavers have denied wrongdoing throughout the litigation. They have argued that much of Uncle Nearest’s financial distress stems from Senzaki’s alleged forgeries and conduct.
The latest receiver report also states that the receivership estate likely has viable legal claims against Fawn Weaver and Keith Weaver. It identifies Senzaki and entities controlled by former officers or directors as other possible targets.
Lender oversight comes under scrutiny
The receiver’s latest counterclaim turns much of the focus toward the lender in this case, Farm Credit Mid-America.
According to the filing, Farm Credit failed to implement standard verification procedures while administering Uncle Nearest’s credit facility. The receiver argues that those failures allowed Senzaki’s alleged misconduct to continue undetected.
Young alleges Farm Credit approved 28 draw requests totaling nearly $67 million that were submitted by Senzaki without authorization from Fawn Weaver. The receiver claims the lender relied on Senzaki as its primary company contact while failing to independently verify the requests.
The filing also claims Farm Credit continued expanding the company’s revolving credit facility after warning signs emerged. One inspection allegedly found that the borrowing base had been overstated by approximately $21 million.
Young also alleges Farm Credit collected roughly $400,000 in origination and amendment fees as the revolving facility expanded from about $35 million to nearly $67 million.
“The more Mr. Senzaki borrowed, the more Farm Credit earned in fees,” the counterclaim states.
Farm Credit said it strongly disagrees with the allegations and the receiver’s characterization of its conduct.
The counterclaim broadens the questions surrounding Senzaki’s alleged activity by examining the lender’s role in reviewing financial information. It also places new attention on how much independent verification lenders should conduct when one finance executive controls most communication surrounding a credit facility.
Federal authorities seek records
The SEC and the U.S. Attorney’s Office for the Southern District of New York have both requested documents from the receivership, according to Young.
Young and his advisers are working to comply with the subpoenas, according to the quarterly report. The filing offers no details about the records requested or the conduct under review.
The federal interest arrives as the receiver continues a forensic review of Uncle Nearest’s finances and operations. It also comes as Young pursues a potential sale that could determine the future ownership of the brand.
The outcome here may offer a wider lesson on how boards and lenders monitor finance executives with significant control over the processes behind getting access to capital.
