In the summer of ‘21, federal agents arrested Tom Barrack, charging him with acting as an unregistered foreign agent and with obstruction of justice. The news erupted across the worlds of real estate and politics; the Colony Capital founder is firmly in the pantheon of industry dealmakers, a guy who ran CRE for the billionaire Bass family in the 80s and over the next four decades orchestrated many of the industry’s marquee transactions. He was (and remains) a close friend of and key fundraiser for Donald Trump, and federal prosecutors alleged that he used his access to Trump to advance the foreign-policy goals of the United Arab Emirates.

The arrest set off a scramble at Colony’s successor firm, DigitalBridge, now led by Marc Ganzi. Behind the scenes, the company negotiated with prosecutors over Barrack's proposal to pledge his DigitalBridge equity toward his bail, ultimately agreeing to restrict his ability to sell or transfer the subsidiary partnership units that made up the bulk of it.

To win his release pending trial, Barrack posted a $250M bond, one of the largest ever offered up in a criminal case in the U.S. at the time. The bond was secured by $5M in cash, $21M in DigitalBridge shares, and homes owned by him, his ex-wife, his son, and a key lieutenant, Jonathan Grunzweig.

Grunzweig’s extraordinary show of fealty to his longtime patron hastened his end at DigitalBridge; he was terminated months later, and his exit ignited a bitter dispute over carry, i.e. the cherry-on-top share of profits a GP is entitled to after a fund hits a certain return threshold. The dispute went into binding arbitration, and last summer, the tribunal overwhelmingly ruled in Grunzweig’s favor, saying that there was “a coordinated and deliberate corporate purpose at the highest levels of the Company, with the backing of the Board,” to deny him the carry and other comp. It determined Grunzweig was entitled to a $14M monetary award, half of it punitive, as well as to his full carry (more on that later). A final judgment confirming the awards came late last month and was just recorded; DigitalBridge may still request a review. 

Reached by email, Grunzweig declined comment. DigitalBridge, whose $4B acquisition by SoftBank is set to close this year, didn’t respond to requests for comment. Barrack was acquitted on all charges in Nov. ‘22 and is now the US Ambassador to Turkey as well as President Trump’s special envoy for Syria and Iraq. He didn’t respond to requests for comment. This account is based on the events laid out in the arbitration proceedings reviewed by The Promote, as well as conversations with sources familiar with the matter. 👇

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Three days after Barrack’s arrest, Grunzweig informed Ganzi that he’d be acting as a “surety” for his mentor. Given that the news would likely become public, Grunzweig added, “suggest taking me off website ASAP as a start”. Ganzi informed company execs of Grunzweig’s decision and asked that he be removed from the website. Grunzweig, Ganzi added, “knows and acknowledges this could be adverse to the Company and is proceeding."

Barrack’s arrest triggered scores of investor inquiries. “Not good - LPs pinging me on this,” DigitalBridge’s head of capital formation Kevin Smithen wrote to Ganzi, who replied: "Big deal. us govt holds his shares. Spin it. It's good news…. If he runs, us govt has his shares.” Grunzweig’s bail assist, too, triggered inbound. Michael Rosenfeld, an exec at LP PSP Investments, asked: “Does Jonathan Grunzweig still work at Colony Capital? Found it odd that, according to this article, a current Colony exec would pledge his house to help post bail for Tom.”

Ganzi pinged his CFO, Jacky Wu, stating that “Next up, remove him [Grunzweig] from the Company. He failed to go to Dublin*. Chose defending Tom over defending DBRG.” In later testimony, Ganzi said the reason he didn't tell Grunzweig he wanted him out was that Grunzweig held key-man status in the docs governing the $500M+ sale of a chunk of DigitalBridge’s legacy CRE holdings to Fortress. (That transaction was vital to DigitalBridge’s much-heralded transition from a hybrid of trad REIT/alt-asset manager in multiple asset classes to a pure-play alt asset manager in digital infrastructure.)

“It was essential that we keep him until the [Fortress] closing so that key man provisions and other things could not be renegotiated by our LPs,” Ganzi testified. “So we couldn't fire him.”

*“Dublin” re. to a Fortress-related trip to Ireland that Grunzweig delayed b/c of the Barrack situation

Mice Nuts 🐭

But there were other things Ganzi could do. Per the tribunal’s account, he moved to remove Grunzweig’s 1.25% carry allocation in DigitalBridge’s Fund II, despite this allocation appearing on “all spreadsheets before Barrack's arrest and Grunzweig’s assisting with his bail.” A week or so later, DigitalBridge’s comp committee, chaired by director John Fosheim, told Ganzi that Grunzweig “is not going to get his promised carry.”

(A quick note to understand the stakes here: The fund in Q raised $8.3B, and its deals include the late ‘22 $11B take-private of Switch. As of this June, Switch is reportedly in talks to raise a round at a $50B+ valuation – here is Ganzi breaking down the investment on The Promote pod last summer. Insiders: See your section for the carry calc. breakdown – fun stuff)

“The fury the Board and Ganzi direct at Grunzweig for acting as a co-surety is highly suspect,” the tribunal wrote. It added that the firm had other motives to claw back his carry, noting that the carry checkbook was, in its words, "definitely overdrawn.” In fall ‘21, Grunzweig’s carry was reallocated, contrary to his employment agreement. Soon after, Ganzi discussed a wind-down of Grunzweig’s employment with him, and said Grunzweig would be entitled to the following:

Ganzi informed Grunzweig that the Fund II carry “is not available to you due to the matter of our former Founder and Chairman.” He claimed that DigitalBridge had the right to buy back that carry at the current value, which he told Grunzweig was between $31K (not a typo) to $32K, “per our public marks.” To put the matter to bed, he offered Grunzweig a one-time payment of $1.5M.

Meanwhile, Ganzi had separately written to Wu and GC Ron Sanders about the matter, describing the repurchase amt. as “mice nuts …. LOL. $31,000? LOL." 🐭

Foxtrot Over and Out 🦊

In Dec. ‘21, Project Foxtrot, the internal moniker for the Fortress sale, closed. On a Jan. call, Grunzweig told Ganzi he expected the company to honor his employment agreement and award the carry. Immediately after, Ganzi wrote up the call for Fosheim, Wu and Sanders: he had reminded Grunzweig that his role in Barrack's bail "was and remains an open action for Cause, whereby he would get not only no carry, but no renumeration on the way out the door." He added that he'd told Grunzweig "there are loads of facts to go around here and that I think the Company can establish damages for his selfish behavior around Tom's bail."

He also emphasized that he needed to terminate Grunzweig immediately, “or he falls into 2022 Comp.” Grunzweig’s $4.5M success fee on the Fortress deal was not paid out within the required window, which Sanders later testified was intentional, done to gain leverage over Grunzweig.

In February, Grunzweig took his case to Fosheim. Three days later, he was terminated. Grunzweig was sent a check for $280K, which the company called a "notional grant" of his 1.25% carry followed by a "notional exercise" of its right to repurchase it; in essence, buying back something it had never handed over. (Sanders testified the maneuver was his idea.)

That ended Grunzweig’s 20Y+ tenure at the firm during which he served Barrack in various capacities, including as global CIO and head of special sits. As we’ve discussed before, titles only go so far; what matters is if you’re the founder’s “guy.” Grunzweig was definitively one of Barrack’s guys; not so much Ganzi’s.

The firm also sent him a separation agreement, which required him to release all claims against the company – including any claim to the Fund II carry. But his ‘20 employment agreement had explicitly carved out claims relating to carry, meaning that he had the right to fight for it on his way out. Grunzweig refused to sign. 

Ganzi kept up the internal crusade against Grunzweig, writing to Wu: “Jon really damaged us. With standing up for Tom. And his fraud case * in Italian courts. Both hurt fundraising. He was not an asset at the end .... To be direct.” After Wu expressed his agreement, Ganzi replied: “Ugh. I am so glad these clowns are gone.”

*Re. to a tax dispute w/ Italian authorities over a Colony investment, in which Grunzweig was a director

The Hammer 👩‍⚖

The bail assist explains why Ganzi and the board wanted Grunzweig gone. But it wasn’t what sank DigitalBridge in arbitration. Under California law, terminating an employee shortly after they press a claim for unpaid compensation is presumed to be retaliation, and the burden’s on the employer to prove otherwise. Grunzweig had spent weeks demanding his carry and his unpaid Fortress fee. He was fired 3 days after taking it to Fosheim. The tribunal found DigitalBridge never rebutted the presumption.

“What is extraordinary about this case is the intentional malice, trickery, and deceit involving executives at the highest level of the Company,” the tribunal wrote, in justifying its award of $7M in punitive damages. “Moreover,” it added, “senior executives took pleasure in the Company’s malicious conduct,” flagging Ganzi’s “mice nuts” email as an example. Interest has been running at nearly $4K/day since the monetary award was issued last summer, now ≈$1.3M.

The tribunal directed DigitalBridge to award Grunzweig the full 1.25% carry on Fund II – not just write a check for what it was worth. If a court throws out that part of the ruling on review, DigitalBridge instead owes him $14.2M for the carry. It also ordered full vesting of his O/S equity + carry across 14 other Digital/Colony funds. A comprehensive judgment is one thing; getting paid quite another (Meridian/Weinberg anyone?). We’ll see how long this drags out from here, and whether it’s done & dusted before the M&A w/ SoftBank.

The particulars here are extraordinary — a firm's founder arrested on federal charges, and the hullabaloo serving as cloud cover for a house-cleaning at a shop shedding its legacy skin. The dynamics underneath, though, are felt across the GP landscape: new sheriff, no room for the old capos, and the ever-looming question of carry – who’s entitled to it, and what it’s worth. 👨‍🦲