ATM network Investors sue Lancaster-based investment company

• By Dan Nephin/LNP | LancasterOnline

Investors in a nationwide ATM network owned by a Lancaster-based investment company are seeking control of the network and suing the investment company, alleging it has failed to pay more than $65 million in monthly management fees since April.

The head of Heller Capital Group, the Lancaster-based private equity firm, and an investor testified Monday during a court hearing over the investors’ request that a judge grant them control of the ATM network to prevent “immediate and irreparable harm of the ruination of the entire value of their present ATM businesses and, at a bare minimum, the loss of business opportunities,” according to the suit. The lawsuit was filed Friday in Lancaster County Court.

Jerry Hostetter — an investor and the president of Lancaster-based Prestige Investment Group, which is also owned by Heller Capital — testified Monday that he had a fiduciary obligation to protect the ATM network’s investors in 25 different funds. The investors are some 2,700 people, including himself.

That’s why Hostetter said he moved to terminate the various funds’ management agreement with Paramount after having several conversations recently by email and text with Daryl Heller — head of Heller Capital Group, the Lancaster-based private equity firm that owns portfolio companies Prestige and Paramount,  and Prestige’s CEO, according to its website.

Heller testified that he told Hostetter to do what he felt he had to do.

Under cross examination, Hostetter acknowledged he lacked the authority to file lawsuits but said he felt he had to act once he realized investors weren’t being paid.

“What did PIG do to protect my interests?” Hostetter said, referring to Prestige.

Lawyers ‘not working for free’

Hostetter testified that he doesn’t know who is paying for the lawsuit, but it is not himself, nor is money coming from the funds.

“I really don’t know who is paying for this,” he said, adding, lawyers “are not working for free.”

The 25 funds are being represented by Kleinbard LLC, a Philadelphia-based law firm.

Kleinbard attorney Matt Haverstick declined to say who is paying for his representation.

“A better question would be, ‘Who is paying for Heller’s representation and is it coming from money that was supposed to be going to the funds?’” Haverstick said.

Haverstick also said Paramount has “admitted to owing tens of millions of dollars to 2,700 fund investors and there was no testimony today giving any good excuse for why it hasn’t made that payment.”

Hostetter is also known locally as general chair of this year’s U.S. Women’s Open

ATMs ‘in real peril’

Many of the network’s investors are from Lancaster County, he said.

Haverstick said his concern “is that the ATMs are in real peril.”

There are some 25,000 ATMs in question, most of which are in places such as convenience stores, Haverstick said.

“Around $80 million is already owed, but $700 million is what is really at risk, if the network goes down,” he said. Though $65 million is mentioned in the suit, the $80 million Haverstick referred to counts money not paid in August.

Judge Leonard Brown III said he would rule this week on the plaintiffs’ request.

Paramount attorney Jeffery S. Torosian declined comment after the hearing.

Welkowitz estate

In his testimony on the stand, Heller acknowledged his various entities did not have $65 million on hand. But he said working capital was going toward upgrading some 25,000 ATMs, including complying with new security standards going into effect next year.

Heller also said Paramount had been talking with investors about buying out 14 of the 25 funds, but investors had been talking to competitors, which was creating “back channel interference.”

Besides the suit on behalf of the 25 different fund investors, Heller acknowledged Paramount is facing at least a half-dozen other lawsuits in Florida, Pennsylvania, New York and Michigan.

One of the lawsuits, filed earlier this month in Lancaster County Court, is by the estate of late real estate developer Richard Welkowitz.

Welkowitz died by suicide in December 2019, leading to claims filed by dozens of creditors claiming hundreds of millions owed. Since 2020, the estate has been trying to raise money to pay the creditors.

Heller Capital purchased the estate’s stake in an ATM-owning partnership after a county judge approved the deal as a means of paying down the estate’s debts.

The estate claims in its suit that Heller Capital is in breach of contract in the amount of $3.2 million.

Heller acknowledged the estate was claiming that amount, but he said the actual amount was likely going to be closer to $1 million. He also said some of the other suits were discontinued, frivolous or would be worked out for far less than whatever money was being claimed as owed.

Online court records also indicate the federal government filed a $5 million tax lien against Heller in March in Lancaster County Court.