Dive Brief:
- Mountain Express Oil Company’s former co-CEOs, Lamar Frady and Turjo Wadud, are being investigated for “the potential siphoning of millions of dollars” from the company into separate entities they own, according to a March 29 filing with the U.S. Bankruptcy Court for the Southern District of Texas Houston Division.
- The investigation is being conducted by Mountain Express’ Chapter 7 bankruptcy trustee, Janet Northrup. According to the filing, this siphoning may be connected to the 60 sale-leaseback transactions Mountain Express made during its rapid growth phase in 2021 and 2022.
- Northrup’s investigation marks the latest in a tumultuous year for Mountain Express ever since the c-store and fuel retailer filed for bankruptcy last March.
Dive Insight:
Friday’s court filing notes that between 2020 and 2022, Frady and Wadud grew Mountain Express’ retail business by more than 300% through more than $800 million worth of sale-leaseback transactions, eventually reaching 550 c-stores in its network by the end of 2022.
However, according to the court filing, evidence indicates that during this period, Frady and Wadud not only “failed to establish internal controls” but “failed to make a reasonable effort” to figure out whether those deals were profitable, since they used those transactions to siphon millions of dollars to their own side companies.
The filing states that at the closing of these deals, Frady and Wadud would “cause funds to be wired” to their side companies as fees for work they performed while locating and conducting due diligence on properties. These fees were “substantial,” the filing notes.
For instance, in September 2021, two entities owned by Frady and Wadud each received $875,000 in connection with a sale-leaseback transaction. About a month later, those entities received another $875,000 after another deal was made, the filing notes.
Such money transfers were made on other deals as well, the court filing notes.
Northrup is now investigating whether and to what extent there was wrongdoing relating to these transactions, and whether these parties associated with the transactions are a source of potential recovery for Mountain Express’ estates and creditors.
According to Friday’s court filing, Oak Street Capital — which financially supported Mountain Express back in 2021 for up to a billion dollars — and Jared Sheiker, principal and chief of staff for Oak Street’s parent firm Blue Owl Capital, have “unique and important knowledge” of the “facts and circumstances” underlying Mountain Express’ financials from its sale-leaseback transactions. This makes them “two of the most important witnesses in this bankruptcy proceeding,” the filing says.
When brought in for their respective “examinations” in February with Northrup — where they answered questions related to Mountain Express’ activity over the past few years — Oak Street and Sheiker initially participated, but are now refusing to continue for various reasons. Northrup has requested the court require them to continue the process.
Mountain Express filed for Chapter 11 bankruptcy protection in March 2023. Five months later, a proposed sale to Arko Corp. — which also receives financing from Oak Street via Blue Owl — fell through, and the fuel and convenience retailer shifted to Chapter 7 bankruptcy, thus commencing the liquidation of its assets and terminating all operations.
