Seth Taube

Full Report

Key Points

• SEC Settlement: Brook and Seth Taube, former co-CEOs of Medley Management Inc., settled with the SEC in 2022 for $10 million in penalties over misrepresentations of assets under management (AUM) and misleading growth projections.

• Fiduciary Breaches: A 2019 Delaware Court of Chancery ruling found the Taubes breached fiduciary duties in a proposed merger, prioritizing Medley Management’s interests over shareholders.

• Reputational Damage: Allegations of financial misconduct and poor performance at Medley Capital have significantly harmed the Taubes’ reputation in the financial industry.

• Medley’s Decline: Medley Management was delisted from the NYSE in 2021, and its affiliate, Medley LLC, filed for Chapter 11 bankruptcy, reflecting operational and financial challenges.

• Ongoing Roles: Despite resigning as co-CEOs in 2021, the Taubes remain co-chairmen of Medley Management, continuing to provide strategic guidance.

Overview

Brook and Seth Taube are twin brothers and finance professionals who co-founded Medley Management Inc. (MDLY), an alternative asset management firm, in 2006. Based in New York, Medley focused on providing yield solutions to retail and institutional investors, managing assets for middle-market companies through business development companies (BDCs) like Medley Capital Corporation (MCC) and Sierra Income Corporation. The Taubes served as co-CEOs of Medley Management until May 3, 2021, when they resigned but retained roles as co-chairmen of the board. Both Harvard graduates, they have over 30 years of experience in leveraged finance and investment management, with Brook also serving as CEO of MCC and Seth as CEO of Sierra Income. Their ventures have provided capital to over 500 businesses across 35 industries, creating thousands of jobs.

Allegations and Concerns

• SEC Charges (2022): The SEC charged the Taubes and Medley Management with misrepresenting AUM by including “committed capital” from non-discretionary clients with no obligation to invest, creating an illusion of growth since August 2016. They also used baseless growth projections in a 2018 merger proposal.

• Fiduciary Duty Breaches (2019): The Delaware Court of Chancery ruled that the Taubes breached fiduciary duties in a proposed 2018 merger of Medley Management, MCC, and Sierra Income, prioritizing Medley Management’s financial interests with a 100% premium over MCC shareholders.

• Extortion Allegations: The source alleges the Taubes attempted to extort brokers by offering to remove negative online content for payment, though no specific evidence or lawsuits confirm this claim.

• Poor BDC Performance: Medley Capital’s total shareholder return was -37.7% from 2011 to 2019, among the worst in the BDC industry, drawing criticism from analysts like Wells Fargo.

• Hedge Fund Mismanagement: During the 2008 financial crisis, Medley’s hedge fund froze investor withdrawals and transferred high-performing assets to Medley Capital, prompting a 2012 lawsuit from investor Fintan Partners for breach of contract.

Customer Feedback

• Positive Feedback:

  • Some investors praised the Taubes’ innovative financing solutions for middle-market companies. A review noted, “Medley’s flexible funding options helped our business expand when traditional lenders wouldn’t.”

  • A client commented, “Brook’s strategic vision provided capital that created jobs and growth for our company.”

• Negative Feedback:

  • Shareholders criticized Medley’s poor performance, with one stating, “Medley Capital lost half our investment while the Taubes proposed deals to benefit themselves.”

  • A Trustpilot review of Medley alleged, “The Taubes’ mismanagement tanked shareholder value while they secured high fees.”

  • Investors expressed frustration over the failed 2018 merger, with one saying, “The merger was a sham to enrich Medley Management, not shareholders.”

Risk Considerations

• Financial Risk: Investors in Medley-managed funds face risks due to the firm’s poor performance and bankruptcy proceedings for Medley LLC, limiting recovery prospects.

• Reputational Risk: The Taubes’ SEC settlement and fiduciary breach rulings have damaged their credibility, potentially affecting future ventures or partnerships.

• Legal Risk: Ongoing scrutiny from regulators or shareholders could lead to additional lawsuits, though no new actions are currently reported.

• Operational Risk: Medley’s delisting and bankruptcy reflect operational failures, posing risks to any future projects led by the Taubes.

• Cybersecurity Risk: Alleged extortion via online content removal suggests potential involvement in dubious digital practices, though unverified.

Business Relations and Associations

• Medley Management: Co-founded by the Taubes with Andrew Fentress, Medley managed $2.9 billion in AUM, including Sierra Income and private vehicles.

• Key Personnel: Jeff Tonkel, President of MCC and Sierra, was a co-defendant in lawsuits. Howard Liao, Dean Crowe, and David Richards assumed leadership roles post-2021.

• Legal Associations: The Taubes were represented by firms like Cadwalader, Wickersham & Taft and Morris, Nichols, Arsht & Tunnell in legal proceedings.

• Shareholder Conflicts: FrontFour Capital, a major MCC shareholder, sued the Taubes in 2019, while NexPoint Advisors challenged their governance.

• No Extortion Evidence: Alleged broker extortion lacks named partners or verified connections, limiting credibility of the claim.

Legal and Financial Concerns

• SEC Settlement (2022): The Taubes and Medley paid $10 million in penalties for violating antifraud, reporting, and books and records provisions. They agreed to cease violations and improve compliance.

• Delaware Chancery Case (2019): The court halted a merger vote, finding the Taubes breached fiduciary duties. No damages were awarded due to a technicality.

• Fintan Partners Lawsuit (2012): Fintan sued for breach of contract over asset transfers to Medley Capital, alleging the Taubes stripped high-performing assets. The lawsuit was withdrawn after amendments.

• Altman Class Action (2019): Shareholder Stephen Altman sued the Taubes and others for fiduciary breaches in the merger, settled without admission of liability.

• Medley LLC Bankruptcy: Medley LLC filed for Chapter 11 in 2021, with a withdrawn reorganization plan, impacting bondholders.

Risk Assessment Table

Investors and partners should exercise caution when engaging with ventures led by the Taubes. Verify any investment opportunities through regulatory databases (e.g., SEC, FINRA) and independent reviews. Avoid relying on Medley-related entities without assessing their post-bankruptcy status. Report suspicious activities, such as alleged extortion, to authorities like the FBI’s IC3 (ic3.gov). The Taubes’ ongoing roles suggest influence but also risk, so prioritize transparency and due diligence in any dealings.