For a moment in 2011, charity organization Seathos Foundation was Venice’s celebrity cause de jour. Its mission to spread awareness of the human impact on oceans drew such supporters as actors Julia Roberts and Jeff Bridges and surfer Kelly Slater. Its posh three-story space on Abbot Kinney Boulevard housed an art exhibit that spring by Incubus singer Brandon Boyd.
But while the goodwill poured in, its co-founders were allegedly discussing ways that Seathos could promote their own business activities – ambitious plans that ultimately resulted in a nasty partnership breakup.
Two of the co-founders, Nick Behunin and Michael Schwab, son of billionaire investor Charles R. Schwab, now say the other used Seathos to advance his own business interests.
The infighting also includes a dispute over a much bigger venture: plans to develop land owned by descendants of Indonesia’s late dictator Suharto.
Behunin says he was edged out of a potential real estate development project in Bali with Tommy Suharto, the youngest son of Suharto, who died in 2008, on land obtained through military force during his father’s presidency.
Though Behunin said he had obvious concerns about the younger Suharto’s 2002 conviction for ordering the assassination of an Indonesian Supreme Court judge, the general idea was to build eco-conscious developments.
“Even a brutal dictator can do environmentally conscious investments. There’s nothing mutually exclusive about those things,” said Leonard Steiner, an attorney representing Behunin.
Standing to benefit from that alleged plan were the Seathos co-founders; the Suharto family; and a handful of investors, including the senior Schwab.
Behunin claims the Schwabs went ahead and formed a $65 million business venture with the Suharto family – cutting him out of the deal. He’s started a legal fight with the Schwabs, alleging he and his companies were unfairly elbowed aside.
“In effect, my clients were thrown out of a business opportunity through fraudulent representations,” said Steiner.
A spokesman for Charles R. Schwab acknowledged the passive investments in Behunin’s businesses, but denied further involvement. He also denied that the Schwab family has ever partnered with the Suharto family “on any kind of investment or development.”
“Mr. Schwab was a passive investor and didn’t have any other involvement,” said Greg Gable, of Charles Schwab Corp. “He believes the suit’s baseless and (Behunin) seems to be trying to shift the blame from Behunin’s bad business judgment.”
Michael Schwab, meanwhile, has previously sued Behunin and Chris Jensen, the third Seathos co-founder and partner with Behunin in another venture, for self-dealing through the charity and failing to open its books.
Michael Schwab denied the allegations against him through a spokesman.
Behunin and the younger Schwab, a Venice resident, initially met as surfing buddies, according to Behunin’s lawyer. Together in 2009 they formed Sealutions, an El Segundo firm that was to pursue environmentally conscious real estate investment and development, such as building multipurpose reefs and coastal protection structures.
Sealutions then acquired a majority stake in Behunin’s business, ASR Ltd., a marine environment consultancy in New Zealand.
Behunin, Schwab and Jensen formed Seathos in 2010, and Behunin said Charles Schwab committed $250,000 to the charity. That summer, Behunin claims in a suit filed in Los Angeles Superior Court in May, he and Michael Schwab began pursuing a relationship with the Suharto family and discussed ways in which Seathos could promote those interests.
His case describes a series of meetings in 2010 and 2011 with Charles Schwab at golf courses, Schwab’s house and his San Francisco offices, in which the elder Schwab committed to funding the business venture and pushed for the development of a business relationship with the Suharto family.
Sealutions partnered with Schwab and other investors to form Seachange, which Behunin said would focus on acquisitions and development in Indonesia.
Documents filed in court appear to confirm that Behunin entered into a business venture with Michael and Charles Schwab, but those agreements do not mention the Suharto family. Whatever the purpose of the venture, it quickly fell apart.
Behunin claims that the Schwabs stopped funding Sealutions in June 2011. They then convinced Behunin to terminate Sealutions’ interest in Seachange, with the promise of forming a new entity that he would have a stake in, according to Behunin.
Meanwhile, Behunin’s business, ASR, flailed. It built a multimillion-dollar surfing reef project in Dorset, England, in 2009, but the reef did not perform as expected and was met with heavy criticism from local residents and government officials. A BBC News report broadcast in 2010 quoted locals calling it “an unmitigated disaster.”
ASR was taken over by liquidators in late 2012. For more than a year after liquidation, PricewaterhouseCoopers was unable to make contact with Behunin or Sealutions, prompting British media to describe him as “missing.”
Michael Schwab and Behunin also fought over the charity Seathos. Schwab sued in 2012 to attempt to force Behunin and Jensen to open the organization’s books. Last year, he filed another lawsuit alleging self-dealings by the two, citing $360,000 in contracts that Seathos awarded to ASR to conduct oceanographic research. Behunin claims the Schwabs knew about the contracts all along.
Seathos had its tax exemption revoked last year by the IRS for failing to file necessary forms.
Behunin alleges that the Schwabs are pushing on with an investment fund without him, in the form of Cayman Islands company Emergent Indonesia Opportunity Fund, with $30 million from the Suharto family and $35 million from the Schwabs. San Francisco’s Emergent Capital, which Behunin says is managing the fund, denied any business relationship with the Suhartos to the Business Journal.
Philip Toomey, an attorney who reviewed the case for the Business Journal, said that Behunin’s case would come down to what was actually documented.
“There appears to be a lot of assumptions that were made without being reduced to writing,” he said. “This lawsuit kind of looks like an adage that business lawyers like to say, which is that it’s always better to have the hard conversations upfront before you go down the path in a business deal.”
