The Securities and Exchange Commission is launching an investigation into the operations of Silver Star Properties.
The embattled real estate firm was issued a formal order of investigation on Feb. 2, according to an SEC filing. The SEC’s Fort Worth Regional Office informed Silver Star of its intent to issue a subpoena demanding the production of “specific documents,” signaling a deepening scrutiny of the firm’s practices.
The nature of the SEC’s inquiry couldn’t be determined. A representative for Silver Star declined to comment.
The SEC wields its authority to enforce compliance with federal securities laws. If a company is found to be in violation, it could be hit with financial penalties and restrictions on individuals serving in leadership capacities within the public company.
The investigation comes amid growing tension between Silver Star’s executive chairman and co-CEO, Gerald Haddock, and Allen Hartman, the firm’s founder and Silver Star’s largest shareholder. The Houston-based REIT turned heads in June of last year when an SEC filing revealed plans to pivot its 6.8 million-square-foot portfolio of low-to-mid tier commercial assets to self-storage.
Last week, Hartman was granted a preliminary injunction against the firm’s consent solicitation, which was planned to confirm executive committee members Haddock, Jack Tompkins and Jim Still in lieu of an annual shareholder meeting.
Hartman described the firm’s consent solicitation as “illegal” in a Q&A with The Real Deal and has pushed for the firm to hold a shareholder meeting, which he claims the executive committee has continually sidestepped.
In December, trustees for Silver Star sued Hartman accusing him of fraud, self-dealing and manipulation. They requested at least $50 million in damages. Hartman has been embroiled in legal proceedings with the firm since his unceremonious ousting as executive chairman in May.
Silver Star first got word of a looming investigation last summer. The SEC’s Fort Worth Regional Office asked Silver Star for information about the company’s activities and disclosures as well as internal documents regarding Hartman and the firm’s charter provisions.
On Nov. 22, the company’s legal counsel spoke with the SEC, and the SEC was still actively reviewing matters regarding Silver Star’s governance, according to an SEC filing.