Back-and-forth accusations have intensified in a lawsuit involving Founders Group International’s two partners, though one has withdrawn a key demand.
Ousted FGI president Xian ‘Nick’ Dou withdrew on Monday his request for the court to appoint a receiver — a person to temporarily take control of the company’s finances — and he and FGI managing partner Dan Liu have exchanged new allegations of stealing from the company in recent court filings.
“We’ve been in ongoing discussions with opposing council since August began, and there were reasons for the withdrawal but I’m not going to get into those,” said Dou’s attorney, Reese Boyd III.
Liu is now accusing Dou of stealing company funds – the same accusation Dou made against Liu in his lawsuit initially filed June 22 and cited as a reason for the need for a receiver. Dou’s lawsuit filed in Horry County is against Liu, three Chinese companies represented by Liu that own approximately 90 percent of FGI, and 15 FGI-affiliated U.S. limited liability companies.
In a court filing Sunday, Dou levied a new allegation against Liu of transfering $4.3 million to himself from a company account without an apparent business purpose, and that amount is larger than Dou’s previous accusations against Liu.
Both men have denied stealing from the company.
FGI and affiliated entities own 22 Grand Strand golf courses and numerous other area properties and businesses, including nearly 30 acres of Myrtle Beach oceanfront land.
There is still a scheduled hearing on Oct. 10 on Dou’s motion for an order prohibiting Liu’s movement of company funds, and an arbitration hearing on Jan. 18 would be the next scheduled court proceeding.
The withdrawal of the motion for a receiver came less than 24 hours after Dou filed a sworn-testimony affidavit Sunday supporting the motion. Dou reserves the right to re-file the motion for a receiver in the future.
“My client and I are confident that the facts of this case and the law in South Carolina would result in his motion being denied,” said Liu’s attorney, Dominic Starr.
In his affidavit, Dou stated: “I believe that substantial and irreparable harm will occur, both to me and to other interested parties, if the court does not appoint a receiver over the Founders Group Entities.”
He included a TD Bank statement from February for Founders Development LLC that appears to show the wiring of $4.3 million from the company to Liu. Dou stated in the affidavit that he is not aware of a business reason for the transfer, and claims the company employee who provided the bank statement to him was terminated by Liu possibly “in retaliation for providing me with this information.”
Dou further alleges he could not find proceeds from real estate sales, including lots at Wild Wing Plantation, in FGI bank balances in May and his access to financial information was then restricted after he relayed his concerns to some FGI employees; and he has witnessed Liu signing the names of Chinese company shareholders on documents and questions the legality of the signatures.
Liu and Dou purchased all of the courses and most of FGI’s properties between September 2014 and April 2015 as partners through nearly 20 limited liability companies under the FGI umbrella.
Liu provided the money as a Chinese national representing three Chinese companies that own approximately 90 percent of FGI. Dou, who owns approximately 10 percent of FGI and its entities, found properties, helped negotiate deals and established operations as a U.S. citizen and immigration consultant based in New York.
Court filings last week accuse Dou of requiring companies doing business with FGI to pay him kickbacks for purchases, and conspiring with employees or other FGI officers to improperly divert funds to themselves.
The filings also claim Dou has received net proceeds distributions totaling approximately $580,000 in 2017, which exceed the amount he is entitled to. Dou said Wednesday that amount is close to his total allocations over three years.
Both answers seek a judgment against Dou for his alleged excess payments and request punitive damages.
In a court filing last Wednesday in opposition to the appointment of a receiver, the LLCs contend Dou retains his ownership interests and contractual rights in each of the FGI entities.
Liu is also challenging Dou’s ownership interests in court documents, stating Dou’s approximate 10 percent interest was awarded based on “erroneous and incorrect information” provided by Dou. While Liu asserts Dou invested no money into any of the FGI entities, Dou claims in his filing Sunday that he and his wife, Mengjia Xia, have invested approximately $760,000 in FGI entities.
The defendants also contend in their filings last week that Dou was complicit in many of Liu’s actions that he now objects to, and did not question them until he was dismissed as president on June 19.
According to Liu’s affidavit filed on July 21, some of the FGI’s properties may soon be changing hands or changing form.
Liu said that some of FGI’s accumulated properties “are either in negotiations or under contract to be developed, sold or acquired.”
Horry and Georgetown county records do not show the sale of any FGI golf courses as of Wednesday.
FGI owns many of the Strand's acclaimed golf facilities including Pine Lakes Country Club, TPC Myrtle Beach, Grande Dunes Resort Course, Myrtle Beach National Golf Club, International World Tour Golf Links and Pawleys Plantation, and has several golf-related businesses.
Additional holdings include more than 300 acres of undeveloped land at Wild Wing Plantation, TPC Myrtle Beach and International World Tour Golf Links, 200 lots at Wild Wing, dozens of acres in Carolina Forest, and the 80-unit multifamily Stonewall Villas development in Longs.
In his affidavit, Liu acknowledged a series of transactions that created more than $140 million in mortgages against nearly all of FGI's properties and assigned those liens to himself, and said the transactions “are for legitimate business purposes.”
As the managing partner of FGI, Liu essentially would have to pay himself with company funds to keep the mortgages current, or he could conceivably foreclose on the defaulting properties, taking individual control of all of them.
Dou said in his affidavit that he was threatened with termination of his positions as FGI president and manager of FGI entities if he refused to sign documents that created the mortgages.
FGI has undergone a restructuring recently, as Dou, general manager Rick Taylor and chief financial officer/vice president Tommy Smothers were terminated in June, and vice president and then general manager Tom Plankers was terminated in January.
FGI director of sales and marketing Steve Mays was promoted to acting president, while Brad Crumling, Matt Daly and Joe Dipre were promoted to regional managers in early July. The company also has three regional superintendents overseeing course maintenance.