The US investment group attempting to complete a takeover of Everton has been accused of running a complex “pattern of fraud” to the tune of hundreds of millions of pounds.

Court papers allege a web of intrigue, putting forward claims that 777 Partners misled lenders by securing huge loans against assets already pledged in other agreements or which, in some cases, did not exist.

The accusations, filed by London-based Leadenhall Capital, raise further questions over not just the business practices of 777 Partners, but also the group’s ability to conclude its takeover of Everton and, even then, to continue to fund a club steeped in debt.

As of Monday, 777 Partners had not publicly responded to the allegations, while Advantage Capital Holdings - known as ACAP and described in the papers as the “puppeteer” controlling 777 Partners - said the claims were “sensational and unfounded” in a statement released to the New York Times. ACAP added it would vigorously defend itself against them

What are the allegations?

The legal action, submitted to a New York court by Leadenhall on Friday, is a civil suit that alleges 777 Partners misled the company in order to borrow vast sums of money. It claims those loans were secured against assets valued at more than $350m - including assets that had either been used as collateral elsewhere, did not exist, or were not controlled by the group.

Leadenhall, which states it is owed $600m by 777 Partners, said it first became aware of these concerns through a tip-off from an anonymous email and that, once it began to investigate, it reached the conclusion not only that they were true, but that 777 Partners had made efforts to cover up the extent of the problem.

The document sets out: “The cardinal rule of the entire financing arrangement was that the borrowers were required to own the assets pledged as collateral ‘free and clear’ of any other security interests. If the borrowers did not actually own the assets pledged as collateral, or if the borrowers had already pledged those assets to another lender, the entire facility would effectively become an illegal and unsecured personal piggy bank…”

‘Robbing Peter to pay Paul’

The allegations are that this is precisely what happened. Leadenhall accuses 777 Partners’ co-founders Josh Wander and Steven Pasko of “operating a giant shell game at best, and an outright Ponzi scheme at worst, that takes money in from investors and lenders and shuffles it around to various money-losing alter egos in the enterprise to disguise their true financial condition”. In essence, they are accused of borrowing money on false pretences, which they then use to buy stakes in, or control of, further businesses such as airlines and football clubs, which they can then use as collateral to borrow even more money. This approach is described in the filings as “a seemingly never-ending cycle of ‘robbing Peter to pay Paul’.”

How were they able to do this?

The documents claim 777 Partners has been able to conduct this strategy because of the backing provided by ACAP, whose chairman and CEO Kenneth King is named throughout the allegations. Leadenhall claims $2.2bn of ACAP’s assets have been invested by 777 Partners and alleges it is that company that steps in to firefight for 777 Partners when payments to lenders, staff or organisations owed money by one of its many businesses becomes due.

It is said: “ACAP is the puppeteer to the 777 Partners’ marionette, and nothing happens at 777 Partners - even execution of a last-minute restructuring agreement to repay uncontested debt and stave off this very litigation - without ACAP’s approval. ACAP is the financial engine behind the scenes which provides last-minute loans and investments in ‘Whac-A-Mole’ fashion to 777 Partners in order to make the enterprise appear solvent to outside lenders and investors.”

Why has Leadenhall now taken action?

Leadenhall became involved with 777 Partners in 2021. The terms of its lending stated that the assets those loans were secured against could not be pledged elsewhere - something it says it made 777 Partners reaffirm from the outset and then again in monthly reports. Issues began to arise with an anonymous email received by the company in September 2022 that sparked investigations by Leadenhall that included talks with Wander.

The situation intensified in March of 2023, however, when work with another lender to 777 Partners was said to have established that more than 1,600 assets with a combined value of around $185m had been double-pledged - used to secure funds from both of the firms.

The court filings claim Wander initially tried to dismiss the issues as being the result of an embarrassing computer glitch. But Leadenhall claims it eventually found “the Wizard of Oz behind the 777 Partners’ curtain” to be ACAP after Wander allegedly said it was that company that had priority on all of 777 Partners’ assets.

Leadenhall claims it has been told by Wander in recent months that ACAP prevented 777 Partners from committing to repay its obligations to Leadenhall and that this action has now been filed “to hold Wander, King, Pasko, 777 Partners, ACAP, and their affiliated entities liable for their pattern of contractual breaches and fraud”. It said the only question left was “whether Leadenhall will be able to recover millions of dollars in damages from a house of cards on the brink of collapse”.

Where does Everton fit in?

The “ultimate goal” of Wander’s efforts are said by Leadenhall to be to fund the takeover of football clubs. 777 Partners’ portfolio already includes Standard Liege, Genoa and Vasco de Gama amongst others - all of which were in financial distress when taken over and several of which have experienced issues such as a points deduction, transfer bans and late payment of staff. Leadenhall claims Wander’s plan is to bet on being able to either “flip” the clubs at a profit or “cross-sell” services such as insurance policies to their fanbases. Everton is described as “the latest shiny object of Wander’s fraudulent scheme”.

The timeline set out by Leadenhall suggests its probe into 777 Partners began to yield results before the takeover deal with Everton was signed in September of last year - meaning efforts to acquire the club continued amid this scrutiny.

What does this mean for Everton?

The allegations are significant for Everton. These remain accusations at this stage of proceedings but the claims of fraud against the group trying to take over the club will only add further controversy to a prospective new owner said in the latest filing to be currently subject to 16 further lawsuits.

777 Partners has repeatedly been urged to explain the group’s plans for Everton and how they will be financed but has refused to do so, other than - in a statement issued by Wander through club channels to supporters back in October - to “acknowledge a number of misleading and concerning reports in media which have created a perception of instability and unrest around our proposed purchase”. He added: “Rest assured, in this case, that the truth is far more boring than the fiction.” Wander and colleagues at 777 Partners have regularly attended Everton games this season. The group had a presence at Kenilworth Road for the draw with Luton Town on Friday.

Beyond those concerns, the lawsuit suggests that 777 Partners is struggling to raise funds and is reliant on ACAP’s support to meet its obligations. While 777 Partners is said to have provided around £200m in loans to help Everton meet its costs since the deal was agreed in September, the biggest challenge to the move being signed off by the Premier League appears to be the demand it pay off around £158m of loans owed by the club to American group MSP.

The alleged need for support from ACAP increases the poignancy of the problems suffered by 777 Partners last week, a week in which 777 Partners’ latest tranche of club funding appeared to arrive late.

This year, credit rating agency AM Best downgraded ACAP’s Long-Term Issuer credit rating and King reportedly said the issues suffered by 777 Re, a group linked to 777 Partners and which had also suffered ratings downgrades, had been “disruptive” and suggested it would look to address the ties between the groups. The chaos that last week saw 777 Partners’ Australian airline Bonza enter voluntary administration was reported by local media to have been due to aircraft being seized by AIP Capital, an investment company linked to ACAP, in an effort to recoup money owed to investors.

Any further problems suffered by 777 Partners or to its relationship with ACAP could severely damage the prospects of the takeover going through. That would force Everton majority shareholder Farhad Moshiri back to the drawing board in his long effort to find new investors, who would have to go through the same regulatory process 777 Partners is currently struggling to complete. In the absence of funding through 777 Partners, Moshiri would need to fund the club himself or find others to do so - which would only increase debt that is already in the hundreds of millions of pounds. At least one other group of potential investors is understood to be making enquiries behind the scenes, however the extent of their interest and at what point they might consider stepping in is unclear. Last month Moshiri is understood to have tasked Deloitte with looking for alternative options that could either help 777 Partners over the line or present a different proposition.

While this would be of clear concern for the sustainability of the club, the latest tranche of support it has received does move it closer to the opening of the summer transfer window on June 14, at which time player sales represent an opportunity to bring in additional money. Confirmation the club will remain in the Premier League next season has also removed one of the biggest threats to its finances, though serious issues clearly remain for a club that recorded a loss of £89m in its latest accounts.

The civil case adds further pressure onto the Premier League, whose owners' and directors' test is the final regulatory challenge for 777 Partners. Under intense scrutiny about its oversight of the top flight and influence on the rest of English football, its ultimate decision - whether it ends up approving or rejecting the takeover deal - will be viewed as a landmark decision and come under heavy scrutiny by lawmakers debating whether it can operate in the best interests of the sport.

What do 777 Partners and ACAP say?

777 Partners, which last week saw one of the PR agencies it has used since the Everton takeover deal was announced walk away over alleged payment issues, has declined to comment publicly so far.

The ECHO has contacted ACAP, which said in a statement reported by the New York Times: “The claims made in the complaint by Leadenhall Capital are sensational and unfounded, representing yet another desperate attempt by Leadenhall to elevate its collateral seniority and seek payment from ACAP while undermining ACAP policyholders. ACAP, similar to Leadenhall Capital, serves as a lender to 777 - there are no ownership ties. The key distinction lies in the fact that ACAP holds senior rights to collateral associated with 777.ACAP has unequivocally stated that it prioritises its policyholders' interests over Leadenhall's. ACAP will take all necessary measures to safeguard the interests of its policyholders and vigorously defend itself against these baseless allegations."