November 28, 2014

His Cup Runneth Over

Mike Vogel | 9/1/2000
What can Sarasota landlord Ronald Spector say about Kenneth B. Dart and Dart Container? For a time in the 1980s, Dart Container rented a couple thousand feet, a hole in the wall really, in Spector's well-appointed, red-brick Second Street office building as a headquarters after leaving its Michigan home. Spector knew Dart Container made disposable cups. And Dart employees shared them generously -- bringing over "cups by the ca-zillions," Spector recalls.

Kenneth Dart, the family member with whom Spector dealt most, hung pictures of plant managers on the wall. It struck Spector as a nice touch. Dart never wore a sports coat or suit. He ate at McDonald's. The remarkable thing about him was how unremarkable he was -- plain-featured, standing something like 5-foot-11 and rail-thin, weighing maybe 120 pounds. "Humble people," Spector says, and likable. At some point, someone from the company asked Spector, without a hint of haughtiness, if he knew who the Dart family was. "Oh, yes," Spector fibbed. In truth, he says, "I didn't know who in the hell they were."

Spector has learned since then that the cups by the ca-zillion came from a ca-zillionaire clan -- one of America's richest families -- who control half the global cup market and have plants across the Western Hemisphere, Australia and Europe. Even as he remained a virtual non-entity in Sarasota, unremarkable Kenneth Dart quietly became one of the most famous vulture investors in the world. The 45-year-old was once Brazil's fourth-largest creditor and now holds a quarter of Ecuador's foreign debt. He presents a nest of contradictions -- a family man who lives apart from his family; an investor in high-visibility venues who tries to remain all but invisible; an Everyman who wears a Timex but owns a 200-foot-plus yacht.

The Dart family might have kept more of its cherished obscurity but for its skill at engineering, investing and feuding. In small-town Mason, Mich., Kenneth's grandfather, William F. Dart, and his father, William A. Dart, had a family business that made metal rulers, military dog tags and a marble game for kids. The future, however, was in plastics. William A., who held three degrees from the University of Michigan, figured out how to mold polystyrene beads into cups. He wasn't the first, but he did it cheaper and at a higher quality than anyone else.

From the first sale in 1960, William A. oversaw the company's rapid growth as America grew, became more mobile and accepted plastic in place of traditional materials. He believed in vertical integration, and Dart Container eventually made its own polystyrene resin for beads, built its own machinery, manufactured its own ink for printing and its own packaging film. It transports finished product -- plastic utensils, plates and take-home-meal boxes -- on its own trucks.

Competitors dwindled. Dart manufacturing grew into the largest cup concern in the world with more than 5,000 employees -- never a major layoff -- and 16 plants, including one in Plant City and a polystyrene resin plant in the Bahamas. William A. and his wife, Claire, weren't comfortable on the country club circuit. They raised three sons -- Tom, Kenneth and Robert -- in a ranch-style home near the plant.

But building family harmony proved harder for William A. to pull off than building a fortune. As a lawsuit filed in Sarasota County later sketched, the brothers were rivals from childhood. In 1986, William A. divided the Dart holdings among the three sons' trusts. The eldest son, Tom, who attended but didn't graduate from the University of Michigan, basically received Dart Energy, a petroleum exploration company he founded at age 23 that later was folded into the family business. His father later would say that Tom wanted recognition outside of cups. The cup business went to Kenneth and the youngest son, Robert, both University of Michigan graduates like their father and both of whom worked in the cup concern. Tom was to get a payment to put the value of his inheritance on an equal footing with what his brothers would get from cups.

Tom later sued, saying his family chiseled him and his children out of $265 million by undervaluing Dart Container. "Whatever everybody agreed was fair, two hours later, it would (be) determined by Tom that he would be cheated," Kenneth Dart told the Sarasota Herald-Tribune in 1993. Certainly, oil didn't prosper like cups. In 1988, for instance, Tom Dart's trust had $360,934 to disburse while his brothers each received $4.5 million. By 1990, the disparity widened. The two younger brothers each received $75.6 million; Tom Dart received $439,666.

Tom, in the Sarasota County suit, complained that his father and younger brothers got chummy working together at Dart Container and shut him out. By the time the dispute reached an undisclosed settlement in 1998, the private family laundry had had a conspicuous airing. A Bloomfield Hills, Mich., resident, Tom was tossed out of Dart Energy in 1995 by the family. Now 47, he has construction interests in the Caribbean. He declines interviews. He says he doesn't wish to antagonize his brother. It's a new-found reticence. Much of the more loopy behavior ascribed to Kenneth Dart is attributed to Tom Dart interviews of years past: Tom claimed variously that Kenneth Dart wondered about keeping his brain alive after his body's death to avoid estate taxes, that he had his 200-foot-plus yacht armor-plated to withstand torpedoes, that he wanted to live at sea to avoid taxation by any nation, even that he wants his own nation, Dartania.

Move to the Sunshine State
William A. and Kenneth Dart, who would comment on this story only through Dart Container general counsel Jim Lammers, say only that Tom Dart's past allegations generally were "either inaccurate or grossly misleading." What's more plausible than the image of Kenneth Dart's disembodied brain being kept alive on a luxury yacht never touching port is that like a long list of people before him, Kenneth Dart came to Florida because it lacked an income tax. Like a very short list of super-wealthy Americans with Florida ties -- Carnival cruise line founder Ted Arison, global investor Sir John Templeton -- he found more tax savings by moving offshore.

After working in manufacturing and learning the rest of the business -- a "quick study" with "high energy," Lammers says -- Kenneth Dart became company president in 1986 and moved to Sarasota in 1987. His grandparents had vacationed in the area. He set up shop first in Spector's building, then in a small, two-story office building behind a furniture store on Field Road off Tamiami Trail. At the head of a flight of stairs, it stands out only for the security camera just outside a locked office door. The building is just down the road from where William and Claire Dart live on private Kimlira Drive and near a gated development called the Landings, where Kenneth Dart set to building a home, complete with an elevator, for his family.

A head for investing
He also set about building a reputation for something other than inheriting the cup business he was running. The 1986 trust reorganization that so vexed Tom Dart freed up money for Kenneth Dart to devote to exploiting what appears to be considerable investment talent. (See "On Target," page 82.) "He has found investing is something intellectually interesting and challenging," Lammers says.

Dart in 1993 told the Sarasota paper he looks for neglected value and follows his own course. "I found that the best of the best advisers were not as good as my own instincts," he said. He turned a $300 million holding of 11% of mortgage buyer Fannie Mae into $1 billion. In 1991, he snapped up stock in scandal-plagued Salomon Bros. and turned a $499 million profit. He also has shown an affinity for relative unknowns such as Princeton, N.J., cancer therapy products company The Liposome Co. and New York-based fragrance and cosmetics company Allou Health & Beauty Care.

Often he bought stock on margin -- that is, with borrowed money. Executives at companies he liked would find out Dart had taken a stake only after the fact. Sometimes he visited. "Very unpretentious, very gracious, a very intelligent individual and a very good businessman," says Allou Chief Financial Officer David Shamilzadeh. "I hope he made a lot of money."

Indeed he did. After three years investing in Allou, Dart had an estimated $1.83 million gain on a $3.82 million investment -- a 48% return. But Dart's return on Allou pales beside his forays into junk bond foreign debt. In 1992, Dart bought Brazilian debt at 25 to 40 cents on the dollar, acquiring 4% of that country's total foreign debt -- at the time, the largest stake of a sovereign nation's debt ever held by an individual.

It guaranteed attention. Dart struck a repayment deal, then refused to budge when U.S. banks and Brazil pressed him in 1993 to take a lesser gain as part of a massive, $35-billion restructuring. He found himself vilified in Brazil as he stuck to his position and took in an eventual $605 million gain. Publicity is something Dart sees as an unwelcome byproduct of some business decisions, Lammers says.

The contention in Brazil wasn't the only pressure he was under. In 1993, his brother Tom opened a new front in the family feud by filing suit in Sarasota County. In December, the house Kenneth was building in The Landings in Sarasota burned down. Investigators determined it was arson but never made an arrest. Dart told authorities it could have been his brother Tom or Brazilians. Dart "called in a private investigation outfit of his own and brought in bodyguards and the whole nine yards," says Ray Chrzanowski, an investigator with the state fire marshal's office in Tampa. Chrzanowski's theory about the fire's origin: "Probably (kids) partying."

That year, 1993, would be Dart's last as a U.S. citizen. The IRS hit him with a $34.5 million tax bill on $88.9 million in taxable income for that year, according to documents filed in pending U.S. Tax Court cases in Washington. (The tax bill for 1994 came to $21.7 million. Dart contends he is being overcharged by millions each of the years.)

He set to building a home for his wife and daughters in Saddle Creek, a rural development featuring horse fences, paddocks and, at his home, 15,704 feet of fiber optic cable. On a street with inviting, country-style homes, the Dart home sits behind a formidable gate watched by a security camera. He hired off-duty sheriff's deputies to provide 24-hour security. It was a "good detail," says Cpl. Chuck Lesaltato of the sheriff's office -- the Darts provided soft drinks and comfortable quarters for the deputies. Plus, the family was nice. Lesaltato remembers Kenneth Dart happily riding bicycles with his kids.

Lammers says Dart focuses on business and family and "has taken seriously the challenge of passing on -- I think what he believes his father passed on -- that is, a seriousness of purpose and a work ethic" to his daughters. He does it from a distance, however: Dart renounced his citizenship, took citizenship in Belize and Ireland and moved to Grand Cayman, where in 1994 he bought a $5.3 million secured compound. (Brother Robert, to whom all the plants report and who sits just below Kenneth in the Dart Container hierarchy, also renounced his citizenship that year. He lived in England for a time -- a move his ex-wife later said was designed to use English law to keep her from getting half the marital assets.)

Having renounced his citizenship, Kenneth Dart can spend only an average of two months a year in the U.S. without risking taxation. He may have intended to make an end run around the law -- Belize, a Massachusetts-sized country whose annual budget is roughly equal to a couple of years of Dart's income, applied in 1995 to establish a consulate in Sarasota with Dart as its diplomat in residence. The U.S. Department of State squashed the attempt.

In exchange for giving up living full-time with his family, Dart gained offshore investment gains free of U.S. taxes. (Dart Container, however, has to pay U.S. taxes.) In the investment circles he runs in, he's a champion of creditor and minority shareholder rights. To debtor countries and corporate chieftains, he's something else -- a carpetbagger and vulture. "Ken's only comment is ... he has a respect for contracts and commitments and people living up to what they agreed to," Lammers says.

Dart's most recent maneuvers include buying, at 22 cents to 24 cents on the dollar, 25% of Ecuador's past-due bonds. Ecuador has since defaulted on the bonds and will have to accommodate Dart to restructure. In Russia, Dart took stakes in companies in that nation's young private sector. For example, he invested in Russia's second-largest oil company, Yukos, and wrestled with Yukos' controlling tycoon, Mikhail Khodorkovsky, over a corporate restructuring that would have left Dart's holdings virtually worthless. Yukos bought him out last year in an undisclosed settlement. It was the first major test of minority shareholder rights under Russia's Western approach to markets. How Dart fared in the settlement hasn't been quantified, but his representative told the St. Petersburg (Russia) Times that Dart's attitude toward new investments in Russia "has soured."

Man of mystery
Dart has the air of being the "international man of mystery" because of his global investments, renunciation of citizenship and secrecy, says Stefan Spath, chief analyst for emerging markets at International Assets Holding Corp., a Winter Park brokerage. Dart's investments clearly show boldness. The foreign debt he buys is at junk-bond level. He makes big bets on single countries in which political turmoil or a currency devaluation can ruin his chance for a profit. But the rewards are commensurate with the risk, Spath says. And "you're a creditor to Brazil. It has a certain amount of cachet." Most trust beneficiaries seek modest portfolio gains and capital preservation. Not Dart. "The fact that this appeals to him says something about his personality," Spath says. "He has the audacity to personally get involved in high risk, offshore-type investments."

Back at his one-time Florida home, however, Dart's audacity isn't evident. Indeed, the whole family has almost no social profile in Sarasota, a town where wealth and charitable fund-raising structure the city's social scene. The W.A. Dart Foundation, headed by his father, gives to Pine View School, a public school for the intellectually gifted, to the Boys & Girls Club of Sarasota County and to several other local groups. The biggest local beneficiary is the United Way, which according to the foundation's tax return got $20,000 in 1998. The Darts contribute "generously," says United Way head Alex Young.

However, other prominent, A-list local charities and groups -- the Sarasota County Arts Council, the Community Foundation of Sarasota County, the New College Foundation, the Sarasota Family YMCA -- say they never made headway with the Darts. Chamber of Commerce? "Not members. Never have been," says Bill Couch of the Sarasota Chamber. "They're a very reclusive family."

Lammers, the Dart Container lawyer, says the foundation was endowed with funds from the entire family and that Kenneth and Robert are actively involved in grant decisions. "The foundation assets are growing as has been giving, and that will continue," Lammers says.

Spector, their one-time Sarasota landlord, knew the family as a landlord generally knows people -- "quiet ... responsible," though "tough bargainers." He once saw Kenneth Dart at a now-closed barbecue joint on Stickney Point Road that "I thought only us rednecks went to." Since then, he's read about the traits of The Millionaire Next Door and recognizes them in Kenneth Dart and his family. "Of course," Spector says, "they were the billionaires next door."

On Target

Kenneth Dart has posted impressive returns in his
second career as an investment whiz:

-- Fannie Mae, the Federal Home Loan Mortgage Corp., a buyer of mortgages on the secondary market. Invested: $300 million. Made: $1 billion. Gain: 333%.

-- Allou Health & Beauty Care, a Brentwood, N.Y., fragrance and cosmetic company. Invested: $3.82 million. Made: $1.83 million. Gain: 48%.

-- Immucor, a Norcross, Ga., health-care company. Invested: an estimated $1.3 million. Made: $828,885. Gain: 62%.

-- Brazil. Invested: $375 million in sovereign debt. Made: $605 million. Gain: 161%.

-- Dart also has invested in: Ecuadorian debt, Russian emerging companies, R.J.
Reynolds Tobacco Holdings, Rhode Island drug company Alpha BetaTechnology, California cancer therapy company Depotech Corp., California personnel company Robert Half International, Michigan food and animal safety company Neogen Corp., Washington cancer treatment company Neorx Corp. and Virginia leaf tobacco merchant Universal Corp.

Source: SEC filings, published reports

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