When Raj Peter Bhakta launched WhistlePig in 2010, he was running low on his luck -- and resources. But the silver lining of hitting bottom is that you can only move up. After launching in 2010 with about $1 million in annual revenue, WhistlePig has grown on average 70 percent per year since. In that time of rapid growth, WhistlePig took on investors. Those investors are now trying to unseat Bhakta and sell WhistlePig.
Bhakta, 40, is gearing up for the battle of his life.
The friends, investors and members of the WhistlePig board of managers delivered notice to Bhakta on April 28 that Bhakta had breached his responsibility as the operating manager. On April 29, Bhakta was notified of an “extraordinary board meeting” to be held on Friday, May 6, to discuss and vote upon Bhakta’s removal for breach of contract.
“It’s a sad tale that former friends are seeking to take the company from its founder and 50 percent owner and put it on the block. But I have known these guys for a long time,” Bhakta says in a phone conversation with Entrepreneur. “I was totally blindsided by their threat that if I didn’t sell I would be bankrupted in court and have my character assassinated in the public square.”
The investment banker Wilco Faessen, who has worked at both Barclays and Lehman Brothers, was a longtime friend of Bhakta. Faessen owns 15 percent of the equity in WhistlePig and is a member of the board of managers of WhistlePig, according to legal documents for Bhakta’s case, filed in May in Delaware, where WhistlePig is incorporated. The other defendant in the case is Christopher Evison, who is the managing director at Quadrant Capital Advisors and investment advisor for WP Holdings, which is an investment arm of the multi-billionaire dollar Santo Domingo family from Columbia. WP Holdings owns 12 percent of WhistlePig, according to the court documents. Alejandro Santo Domingo was a friend of Bhakta after college, though they hadn’t stayed in particularly close touch since then.
Unseating Bhakta as the operating manager would allow the remaining board members to vote to sell the company, which Bhakta says they estimate to be worth $100 million. That would leave Bhakta with $50 million. To be sure, that’s a tempting offer. And the individuals aiming to unseat him from the CEO chair sit on a lot of ammunition.
“There was part of me that was petrified. These are rich and powerful people who threatened me with ruin. No rational person wouldn’t take that threat seriously. On the other hand, I thought about what I was fighting for,” Bhakta says. “This is my farm, where I live with my two daughters and my pregnant wife. This is not just a business, this is not some piece of dirt, like a mall, some piece of real estate, this is my home. I have put my heart and soul into this. I have gotten our employees to buy into a long-term vision of creating the finest whiskey company in the world and I felt like I needed to fight for that, for this being the right thing for our society and civilization, as opposed to gangster capitalism.”
Bhakta’s vision, from the beginning, was to make the first farm-to-bottle whiskey brand made entirely in the United States since prohibition. Before launching Shoreham, Vt.-based WhistlePig, the charismatic, if slightly over-the-top, Bhakta had a bouquet of failed, rather ostentatious endeavors to point to. He had, for example, once ridden an elephant across the Rio Grande in Mexico with a mariachi band. He had also been a contestant on the first season of The Apprentice with Donald Trump.
Bhakta was deemed unfit to be the CEO of WhistlePig for a half dozen incidents of irresponsible behavior that are, the defendants claim, indications of a character unfit to lead the whiskey company.
Claim: On April 26, 2015, Bhakta drove while intoxicated and “pled guilty to criminal offense of negligent operation of a motor vehicle,” according to May 13 court documents.
Defense: Bhakta says that he was on medication from back pain.
Claim: The defendants also say that Bhakta lied to the aforementioned arresting police officers about being in front of his house when he was arrested.
Defense: Bhakta owned the property he was arrested in front of but it was not his primary residence.
Claim: The defendants accuse Bhakta of smoking marijuana on company premises while conducting business.
Defense: Bhakta lives on the WhistlePig premises and says that possession of small amounts of marijuana is not a crime.
Claim: Defendants claim that they were not made aware of equity granted to Danhee Kim, Bhakta’s wife and WhistlePig's marketing director.
Defense: Bhakta says that when he realized that he had not disclosed Kim’s equity to the board, he did so promptly and that any omission was “a good faith oversight, not fraud.”
Claim: WhistlePig leases the property from the farm that Bhakta bought on June 18, 2007. The defendants say that Bhakta renovated his personal property on the company’s dime to build a distillery in one of the properties.
Defense: Bhakta says that the sale of his personal property to the company is an issue of ongoing negotiations and that he “has negotiated in good faith to reach an agreement regarding such a sale.”
Claim: Finally, the defendants say that Bhakta padded an equity repurchase agreement with what they characterize as frivolous consulting charges.
Defense: Bhakta said that he paid for expertise. “There was nothing nefarious about this arrangement, and Defendants’ attempt to construe this into ‘criminal activity’ or ‘fraud’ is pure spin,” the brief states.
The legal team representing the defendants in this case did not respond to Entrepreneur’s repeated requests for comment.
Bhakta doesn’t dispute that he has at times acted in flamboyant and outsized manners. “All good propaganda and lies contain elements of truth. So, have I been a hard-charging, hard-partying guy? Absolutely. Have I made mistakes? Absolutely. Am I a criminal and a fraud? Absolutely not. Absolutely not,” Bhakta says in response to the claims. “These are classic dirty tricks used by a capitalist class and their lawyers to bully and intimidate an entrepreneur and a businessman to doing what they want.”
While Bhakta says that in the earliest days of launching WhistlePig, he toyed with the idea of building a spirits company to sell, he had long ago decided to keep WhistlePig in the family and run it for generations. He fell in love with the business and became convinced that the opportunity to grow WhistlePig was tremendous. By the time Bhakta went to raise funds from investors, he says he was transparent about his intentions to hold on to the company for the long term.
Bhakta says that he hopes that the Santo Domingo family is being mislead. He can’t imagine that his old buddy Alejandro would instigate such a lawsuit.
Regardless of where the impetus for this litigation began, entrepreneurs need to be obsessively careful about who they take money from. Bhakta has learned that the hard way.
“Entrepreneurs need to be very, very careful. Underline, ‘very, very careful,’ about who they take money from. It’s a very difficult decision,” Bhakta says. “When you are growing and you need the money, you really want to take the money, you can’t create the business if you don’t take the money, but on the other hand, you take the money and sometimes you find that you have made a deal with the devil.”
It’s particularly confounding for Bhakta since these investors who are now trying to oust him were once good friends. But even if there is an overlap in business and friendship, investment deals always need to be mapped out obsessively by the most stringent lawyers, says Nikhil Varaiya, the director of graduate programs and a professor of finance at the College of Business Administration at San Diego State University.
“The first thing that any entrepreneur must be aware is that personal relationships are different from business relationships," Varaiya says. "Even though I am a friend and I put money into it, you have to be very clear that in the business relationship who will call the shots.”
And even between friends, a handshake isn’t enough to seal the deal. “Whenever you take money from anybody, you must use the services of a competent lawyer to make sure that you don’t sign an agreement that does not protect your interests, especially if you are still a majority owner,” Varaiya says.
To be sure, the drama that Bhakta is going through is not a reason for entrepreneurs to not take outside investment when they need it. That’s not reasonable, Varaiya says. “If you need outside money, then you should take outside money. And you want to bring in investors who understand why they are putting money into the business," he says. "Just because they are friends does not mean that you assume they will behave in one way. You have to separate the investment relationship from the personal relationship.”
Bhakta recommends that entrepreneurs put into the contract that if a minority shareholder brings a lawsuit against a majority shareholders, that the company pays the legal fees. Seeing this case through will be very expensive for Bhakta.
The defendants in the case “fully expected that when I was in their office and they said, ‘Raj, you have a choice between walking away a rich man and being ruined in court and in the press,’ that I would chose to walk away a rich man,” Bhakta says.
For Bhatka and WhistlePig, the litigation is still ongoing. It will likely be a long, complicated and expensive legal battle. For Bhakta, however, the battle has become about more than his business.
“Life is not just about money. Life is about principal. And I didn’t want to look at my children down the road and say, ‘Listen, your dad got paid a bunch of money to walk away from his principles.’ That is just the wrong message to send to my family, to my children and to the broader society," Bhakta says. "I don’t want to drive a different car. I don’t want to live in a different house. I don’t want a yacht. So, there is nothing I want to buy. I am very, very happy if I see WhistlePig as the gold standard of whiskey globally.”
Whether Bhakta is tilting at windmills or has some amount of leverage is yet to be seen.