Two decades ago, he was one of three young traders who made $27 million in 22 days trading the stock of a bankrupt company on the Chicago Stock Exchange, becoming known as one of "the bad boys of arbitrage."
Assessing that deal, a federal appeals court judge said that Leon "Chip" Greenblatt and his associates "may be reckless gamblers, sharpies, wise guys, exploiters of loopholes, even violators of the letter or spirit of the rules." But, he added, they did not break a law.
Since then, Greenblatt has developed a complex and intertwined array of business ventures and investments, delving into real estate and an online startup as well as gas and alternative energy. But parts of his approach have not changed: He still takes creative risks while spawning lawsuits and recriminations.
In a financial world of order and tradition, Greenblatt, 54, remains proudly unorthodox.
He stamps his companies with quirky names, like Passing Gas Inc. and Rumpelstiltskin. He shuns dark suits and ties in favor of khakis and sneakers and the occasional outlandish outfit for a court appearance, according to friends, associates and attorneys familiar with Greenblatt. At a charity event, he once complemented his tuxedo with black sneakers with flashing lights.
"He's like the TV commercial character — he's the most interesting man alive," said Kevin Werner, who for years has worked with Greenblatt, referring to the ads for Dos Equis beer.
But Greenblatt does not always elicit such admiration. Judges have labeled him "evasive" and his testimony "incredible." A federal judge once noted his "well-earned reputation for sailing close to the wind" and another took him to task for his companies' "convoluted web of entities, insider transactions and sham loans."
Since the early 1990s, he or his companies have filed at least 70 lawsuits, while nearly twice that many have been brought against him and companies linked to him alleging investor losses, unpaid bills and loans, violations of bankruptcy laws and improper payments to his partners.
Legal pressures are only intensifying. Greenblatt has been threatened with contempt of court in Texas, and an appeals court recently affirmed a ruling making him personally liable for more than $1 million owed to a bank. As part of a criminal investigation, IRS agents are examining clean-energy tax credit deals he is involved with, according to court records.
Those tax credit deals also have prompted three Cook County lawsuits against a Chicago law firm that has long worked with Greenblatt. Almost two dozen retired and current NFL players — including former Bear Kyle Orton — allege fraud, saying they received bad advice on an investment that unraveled.
Greenblatt and his attorney, Thomas Durkin, known for his work in high-profile criminal cases, declined to comment for this story.
In interviews, friends and associates describe Greenblatt as an intelligent businessman and creative thinker who finds a way to triumph in court and in the business world.
"Mr. Greenblatt's a very smart gentleman and a very worthy adversary. Very smart — with a lot of money," said Jay Steinberg, once a trustee in a bankruptcy case involving Greenblatt. "The bottom line is, regardless of what happened, he's still walking around."
The center of Greenblatt's business world is a maze of interconnected rooms, cluttered with papers and files, on the seventh floor of a historic Chicago office building at 330 S. Wells St. that a Greenblatt-linked company owns through a trust.
The building shows its age. Wallpaper is peeling; elevators run slowly or not at all. Lawrence Mikolajczyk, who managed one of the landfills where Greenblatt's energy company operated equipment, said pizza boxes littered the floor of Greenblatt's office.
"It was like a really bad Mickey Spillane movie," Mikolajczyk said. "They all had on those three pinch crown hats and just massive stacks of paper everywhere. It was dark, dreary."
Greenblatt, who is married and has three children, lives in a condo overlooking Lincoln Park, one of three vintage units he bought in the 1990s. He is a voracious reader and collects rare valuables like antique books, stamps and furniture, according to records and interviews with friends and associates.
But, they said, Greenblatt is not interested in the trappings of material success like swanky offices, luxury cars and fancy clothes.
"Those things don't matter to him as much as being right, being smart and being successful," said David Neuhauser, his former clerk who spent seven years working with him.
Margot Calvert, married to a former Greenblatt business partner, said Greenblatt once refused to fix the top to a beat-up convertible in the dead of winter. "You know how Chicago winters are, and he could've bought a whole fleet of cars — but he didn't want to stand out," Calvert said.
His business career, however, took off with a big payday that was anything but low-profile.
In 1993, Greenblatt was a trader, having built a successful brokerage, Scattered Corp., over seven years with Andrew Jahelka, his fraternity brother at Northwestern University, and Richard Nichols, whom he met through Jahelka.
With the knowledge that Chicago Stock Exchange rules allowed for short-selling — selling stock not directly owned — Greenblatt took aim at LTV Steel Co., which was in bankruptcy. When LTV's reorganization plan was confirmed, new shares were estimated to be worth 3 or 4 cents, but old shares were trading for more than 30 cents.
In the days leading up to the deadline to trade old shares, Scattered boldly sold short more old stock than existed and delayed settling with buyers, risking a huge loss. But the gamble paid off when the old shares plummeted to zero. The group made $27 million, and Greenblatt and his associates were labeled the "bad boys of arbitrage,'' a nod to their tactics and audacity.
The traders drew the attention — and ire — of the exchange, which fined Scattered and its principals more than $6 million, alleging they had manipulated the market. After lawsuits and disciplinary hearings, the fines were stricken. Both the Securities and Exchange Commission and a federal appeals court sided with Greenblatt.
Greenblatt seemed unfazed by the scrutiny. A widely reported story described that when exchange officials arrived at his office for a routine audit in 1994, Greenblatt greeted them with a toy dart gun sticking out of his pocket and a pool cue in his hand. He had splashed Jack Daniels whiskey on his face. Greenblatt provided officials a room without a table and gave them 10 pages at a time to examine.
By 1996, Greenblatt was expanding his investments. One of his companies invested in EZ Links, a website to book golf tee times whose founders were searching for a second round of funding. By 2010, EZ Links was worth $15 million, Jahelka testified in court.
"I liked them personally," said Steve McKenna, who co-founded EZ Links but has since left the company. "I was thrilled they were supporting us."
But Greenblatt's dealings with EZ Links ended up in court as McKenna and others in 2011 alleged that money from EZ Links was improperly diverted to Greenblatt and his partners, including loans to companies linked to him that totaled more than $1 million. The lawsuit was settled confidentially last year.
Neuhauser said his former boss used both personal and legal conflict to his advantage.
"He was extremely intelligent but also has a different way of looking at things," said Neuhauser, who left in 2001 to start his own hedge fund. "He can be very good-hearted to the people that he knows best and yet at the same time be extremely ruthless to those who cross him or he sees as a threat."
Said Neuhauser: "His view is, 'I don't care. I don't care what people think of me. I want to do what is the right thing to do.' He's more concerned about winning than anything else."
When Greenblatt and his partners began investing in real estate, that venture, too, led to legal conflict. The three snapped up at least seven historic office buildings in downtown Chicago but were accused of not maintaining them. Chunks of terra cotta fell off one at 188 W. Randolph St.
The city imposed a $250,000 fine in 2003, and a frustrated Richard Daley, then the mayor, called him a "slumlord."
Greenblatt also has been scolded by federal judges trying to referee his many legal skirmishes.
U.S. Appellate Judge Richard Posner called Greenblatt "reckless" even as he sided with him in his 1995 ruling on the LTV stock deal. But in 2011, he was harsher — and ruled against Greenblatt.
A company described as a shell — it had no employees or activity — had filed for bankruptcy after Greenblatt and his partners used it to transfer money and open lines of credit among their entities, records show. "Greenblatt's evasive and at times incredible testimony and his orchestration of a scheme aimed at a palpable misuse of bankruptcy raise serious ethical and perhaps legal concerns," Posner wrote.
Posner agreed with a lower court that the filing was to avoid taxes only, calling it "phony." He described Greenblatt as "a character, if ever there was one."
In all, at least eight companies tied to Greenblatt have filed for bankruptcy, records show. More than once, lawyers have alleged he does so to "defraud creditors," and judges have imposed sanctions and fines against Greenblatt's attorneys after "bad-faith" filings.
Dismissing a bankruptcy in 2011, U.S. Judge Bruce Black said: "If there has ever been a bad-faith filing, this is it. It's outrageous."
In a blistering opinion last year, U.S. District Judge Virginia Kendall handed Greenblatt one of his more significant legal setbacks.
She wrote that many of the transactions involving Loop Corp., a closely held real estate company Greenblatt controlled, were "fraudulent" and said his "flippant condescending air in response to legitimate fact-finding questions further convinced the court that he was intentionally evading the truth."
The judge ruled to "pierce the corporate veil" for Loop, meaning that the individual owners are personally liable — not their company — for paying damages.
Court records show that in 2000, Loop obtained a $9.9 million line of credit with a company Greenblatt owns through a family trust. (The company is called Banco Panamericano, but it is not a bank.) Later that year, Loop used the credit to open a trading account with a bank that eventually merged with Wachovia Securities.
Loop's investments didn't go well and Wachovia liquidated the account, saying Loop owed $1.8 million. Court records show that even though Loop had the money available, it did not pay the debt and unloaded its assets, diverting some $1.2 million into Greenblatt-tied entities and paying Jahelka and Nichols without issuing federal tax forms.
Wachovia eventually won a $2.4 million award in arbitration and later sued to collect the money, alleging fraud over the delay in payment. The case ended up in Kendall's court.
She concluded: "Greenblatt served as puppet master while the other officers and directors blindly sat by and followed his orders to Loop's creditors' detriment. All of the players in Greenblatt's scheme comfortably allowed him to control his web of entities, took directions from him, and followed his will because they financially benefited from their acquiescence."
Greenblatt appealed, and last year a federal appeals court upheld Kendall's decision.
Judge John Tinder wrote that the lower court's findings support an "utter abuse of the corporate form" and Loop's owners opened a "floodgate of fraud and injustice."
Greenblatt continues to contest more than $1 million in interest and attorneys fees that he, Nichols and Jahelka are now personally responsible for, records show.
In another ongoing bankruptcy case, the trustee has requested that Greenblatt be found in contempt of court in Dallas for not providing business records after a judge's order. He is scheduled to appear Oct. 1
Tax credits vanish
When asked to testify or produce financial information in court in recent cases, such as the one in Texas, Greenblatt has tried a new strategy to stay silent: He has invoked the 5th Amendment. In legal filings, his lawyers cite a "fear of criminal prosecution," providing IRS summonses to support that argument.
Why? It all comes down to Greenblatt's involvement in the arcane world of transferable tax credits, created three decades ago by the federal government to encourage alternative energy production. Unlike tax deductions, which reduce taxable income, tax credits are reductions in taxes paid, so they're especially valuable.
Greenblatt and accountant George Calvert, also a consultant in the energy industry, formed Resource Technology Corp. in 1993 to set up equipment at landfills for converting methane gas to electricity, according to court and business records. Greenblatt owned the company through a separate entity, according to court records, while Calvert served as president and chairman.
With RTC operating equipment to produce gas, other companies were set up to buy gas and allow investors to claim tax credits.
RTC was forced into bankruptcy in 1999, sparking more than 30 separate lawsuits involving more than 400 creditors. Some of the more than two dozen landfills where RTC was allegedly converting methane gas didn't exist or weren't operating, according to federal court records.
Neither man, however, was done with energy credits.
For Calvert, his business moves after leaving RTC had severe repercussions. In 2011, he was sentenced to seven years in federal prison for his role in an elaborate scheme that defrauded the government of $30 million by claiming bogus tax credits.
Greenblatt, meanwhile, continued with tax credits and ended up playing a role in the investments now being questioned by some two dozen current and former NFL players.
In 2005 and 2006, these players put money into partnerships that sold gas produced from landfills with the aim of later claiming tax credits. According to court records, the entities were created and managed by Greenblatt, Nichols and Jahelka, while the Chicago law firm of Chuhak and Tecson handled the tax forms.
But questions surfaced about many of the credits. Following an audit, IRS attorneys requested a ruling on one of the investments and later determined credits were being claimed for types of businesses that were ineligible, records show. An IRS attorney determined that these credit claims seemed to be "totally without merit."
After the IRS' formal decision to deny the credits in 2010, some of the players settled and paid the taxes they owed as well as penalties. For instance, retired cornerback Samari Rolle, who played 11 seasons, settled with the IRS for more than $1 million.
Orton, Terrell Owens, Ray Lewis and other players sued Chuhak and Tecson, including attorney Gary J. Stern, accusing them of breach of fiduciary duty, legal malpractice and fraud, as well as providing bad legal advice and not informing them of the IRS' "without merit" ruling.
Chuhak has represented and worked with Greenblatt, Jahelka and Nichols since at least 1998, records show. The players' suit describes the three men as part of a "syndicate" that assisted the attorneys, but they are not named as defendants.
The players hope to recover their losses, which could be $6 million or more, according to one of their attorneys, Amir Tahmassebi of Konicek & Dillon, P.C.
The IRS also has launched a criminal investigation; Greenblatt is among those who were summoned for interviews and to provide documents, according to court records.
In spring 2011, an agent in the IRS Criminal Investigation Division tried to interview Stern, who invoked the 5th Amendment, according to records.
Stern, now at a new law firm, Nichols and an attorney for Chuhak and Tecson declined to comment for this story. Jahelka did not return messages.
Kevin Werner, who mailed out documents for the partnerships to the NFL players, said the tax credits were legitimate and investigators were interviewing people — including himself — only because of Calvert's history with Greenblatt.
He said he doesn't see Greenblatt changing.
"It's all business. You either make money or you lose money," Werner said. "He's smarter than most lawyers. He's got a good brain."
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