Hipgnosis founder Merck Mercuriadis has successfully fought off a lawsuit filed by the liquidators of one of the companies he set up using the Hipgnosis name, Hipgnosis Music Limited - and along the way revealed that his main investor in that company, a since convicted Swedish fraudster, once tried to choke him over dinner in a London restaurant.
The liquidators claimed that Mercuriadis had breached his legal duties to that company by taking his grand plan to buy up a load of music rights, something he originally planned to do via HML, and then pursuing that opportunity via entirely different companies also named Hipgnosis.
Earlier this week, High Court Judge Adam Johnson rejected those claims. In his judgement, he explains that, under UK company law, directors do have a legal duty to “avoid conflicts of interest”. And that duty continues even after they cease to be a director.
However, Johnson notes, the obligation only continues in the longer term where it relates to “the exploitation of any property, information or opportunity of which he became aware at a time when he was a director”.
Which is crucial because, the judge says, the mid-2010s plan to buy up music rights on the basis that the streaming boom was about to make those rights much more valuable was “an idea or concept that Mr Mercuriadis was aware of before he became a director of HML”.
Indeed, “it is common ground” that HML was set up “in order to exploit the idea” that had already been conceived. And that, Johnson says, is “fatal” in relation to the claims made by the liquidators of the company.
It’s no secret that the Hipgnosis saga - in which Mercuriadis led the acquisition of numerous valuable music catalogues - was eventful and somewhat confusing, mainly because it involved so many different companies all called Hipgnosis.
In theory the whole saga came to an end last month when Sony Music Publishing announced a deal to buy much of the catalogue Hipgnosis built, having already bought a smaller chunk of the rights last year.
The deals with Sony likely netted more than a billion dollars in profit for private equity outfit Blackstone, a key partner of Mercuriadis which ended up taking control of all the Hipgnosis businesses and catalogues. An outcome which, really, proved that Mercuriadis’s mid-2010s hunch was a pretty good one.
While in one way that drew a line under the whole Hipgnosis saga, in another way it didn’t. Partly because Mercuriadis has set up a new business also using the Hipgnosis name. But also because there was some pesky litigation still pending, including a possibly high-drama lawsuit involving Barry Manilow, as well as this legal battle over HML.
This lawsuit relates to the very early phase of the Hipgnosis rights grab adventure - between 2014 and 2018 - which has generally got a lot less attention, because HML basically stalled before it really got started, and before Mercuriadis ramped up his famous Hipgnosis hype machine.
But that doesn’t mean this phase was any less eventful. And if anyone is writing a book on the whole Hipgnosis saga - or maybe a rock opera? - Johnson’s judgement in this dispute provides a pretty good summary of those earlier events.
The main narrative is that Mercuriadis allied with two Swedish investors to get HML off the ground, Emil Ingmanson and Afram Gergeo, and their company Solid Venture Capital Limited. But, unbeknownst to Mercuriadis, SVCL was investing the profits of fraud.
Johnson writes in his judgement, “SVCL’s £500,000 seed capital in HML, and various other sums used to finance HML in later periods, had their origin in a fraud involving the unauthorised use of monies under the control of the Swedish Pensions Agency”.
Both Ingmanson and Gergeo were ultimately convicted for fraud in Sweden. And as information about the SVCL fraud started to come to light, and criminal investigations got underway, HML began to fall apart.
Mercuriadis initially tried to buy his partners out of the business, but ultimately shut it down in 2018 and then set up a raft of new Hipgnosis-named companies. Which were the ones that ultimately got all the attention, once they had raised a stack of cash, listed on the stock market, and started snapping up superstar music rights left, right and centre.
Unsurprisingly, once the fraud allegations came to light, the business relationship between Mercuriadis and Ingmanson and Gergeo became fractured. According to a witness statement provided by Mercuriadis as part of this court case, during one tense meeting at a London restaurant in 2017, “Mr Gergeo put his hands on me and tried to choke me”.
When asked why - despite his growing concerns about his business partners - he still made a statement supporting Gergeo’s bail application after his initial arrest in 2017, Mercuriadis told the court he only did so “under duress and in fear for his physical safety”.
The fact that SVCL’s investments in HML were the profits of fraud also had an impact on this legal battle. The lawsuit filed by the liquidators of HML initially included “claims for equitable compensation” - which means they wanted money, in normal non-lawyer speak.
That was on the basis HML would have profited from the music rights investment opportunity Mercuriadis had identified had he pursued that venture via HML rather than alternative Hipgnosis companies.
However, those claims were dropped after a pre-trial review on the basis HML wouldn’t have been able to pursue that opportunity anyway once Ingmanson and Gergeo were under investigation for fraud.
That was mainly because HML needed to raise money in order to start buying up rights - the plan was to have both a bonds issue and an Initial Public Offering via another company called Hipgnosis Copyrights PLC - and no one would have invested in that business with a couple of dodgy Swedish fraudsters attached.
With that legal route closed off to them, HML’s liquidators instead pursued a “claim for an account of profits” - in other words, they sought access to information about the profits Mercuriadis had made from his subsequent Hipgnosis ventures.
However, that claim also failed, because of that “fatal” point the judge honed in on - the fact the rights buying opportunity stemmed from an idea Mercuriadis had conceived prior to setting up HML.
Which, pending any appeal, brings at least one of the ongoing Hipgnosis drama storylines to a close. Meanwhile the potential litigation relating to the Manilow bust-up has all the ingredients for more fun and games in the land of the upside-down elephant. Here’s hoping.