Star claims his money managers dropped the fiduciary ball letting his $2 million-a-month lifestyle spiral out of control. They fire back with a bill for unpaid fees that bares the intimate details of previously confidential family office arrangements. Who’s really at fault when a client overspends?
When Johnny Depp filed a lawsuit against his former money management firm, the names of his shell companies, disposition of his assets, compensation and even the amount of wine he drinks every month became a matter of public record.
Considering the noted Hollywood pirate’s previous success in obscuring the details of his financial life, escalating the management dispute has already gotten expensive in terms of lost privacy whether he wins or loses.
And it’s going to be hard for any advisor who’s ever had to fire a difficult client to sympathize with him.
“Fiduciary” failure or wild consumption?
Depp’s court filing reveals that Joel and Robert Mandel effectively served as the Depp family office from 1999 until about a year ago, when he suddenly fired the firm and brought in a new accountant.
Now he’s back with a fraud lawsuit, claiming that the Mandels failed to invest his earnings and keep his spending in line with the money coming in.
They insist they went so far beyond the call of duty that they’re still stuck with close to $5 million in deferred fees, a corporate loan to Depp’s account and other delinquent bills.
The heart of Depp’s argument is that the Mandels had a fiduciary duty to prevent him from running out of cash, which he apparently was in danger of doing early last year.
If so, the contract absolved him from an unusual degree of personal responsibility for his own spending decisions -- effectively granting the Mandels the right to reject distributions and even overrule their client as they saw fit.
That’s a lot more than discretion, really blurring the line between wealth management and something like trustee powers or durable financial power of attorney.
But the problem with that argument is that Depp’s judgment was never impaired enough to force his advisors to make all his decisions for him. He simply trusted them to hit the brakes before the math hit a hard wall.
Meanwhile, there apparently just wasn’t enough cash to really invest, which is actually a little staggering when you crunch the numbers.
Based on the 5% blanket fee the Mandels charged to run Depp’s accounts, the star took in at least $560 million on the Pirates of the Caribbean series, his various Tim Burton extravaganzas and so on.
However, factor out taxes and assorted professional fees and that massive payout turns into something more like $225 million. While that’s enough cash to support whole dynasties in perpetual comfort, Depp evidently needed a whole lot more.
The Mandels lay out the big bills like tissue samples at an autopsy: $75 million to buy 14 houses, $18 million on a yacht, $3 million to launch Hunter S. Thompson’s ashes into space, $4 million to run an unprofitable record label.
Then there’s the recurring overhead: payroll of $300,000, $200,000 to rent private jets, $150,000 for family security, all needing to be paid every month. The wine budget alone drained $360,000 a year from the accounts.
Add it all up, that $225 million actually fell at least $40 million short of what Depp spent over the last 17 years. The Mandels filled the gaps by mortgaging the houses, borrowing on the movie residuals and occasionally covering the float on their own.
They insist that they begged their client constantly to downsize or just slow down. He says he just signed the promissory notes and went on with his business.
That’s a red flag. These are big loans and the time to object was years ago if they didn’t pass the smell test.
Maybe Depp was duped. But if money actually went missing, he’ll need a good forensic accounting team to tell a jury exactly how the Mandels did it.
Never a profitable client
The Mandels, meanwhile, practically rue the day they met Depp and tried to hand him at least two ultimatums over the year to shape up or go elsewhere. The first time was because the star client was chewing up the firm’s resources -- they estimate that he personally cost them half their time and the attention of another 4-12 staffers.
From there, the relationship devolved into crisis management. Depp started spending beyond his income. The firm begged him to slow down. He promised to work harder, and in the meantime the Mandels had to secure advances from increasingly chilly studios or otherwise mortgage the future.
Eventually the future ran out, right around the time Depp was going through his divorce. In retrospect, all this explains his grudging behavior throughout the settlement process and why he fought so hard for a tax break of a few million dollars.
Depp really doesn’t have the cash to cover a big spousal separation. The big houses are already securing big debts -- the Mandels themselves have filed paperwork to foreclose on a few of them in order to recoup their costs -- and the residuals are allocated to pay down other loans.
To add insult to injury, cash flow from the films has deteriorated just enough to keep unpaid interest on those loans rolling over. He’s not going to see another dime on the Pirates of the Caribbean movies for at least another year.
In a situation like this, I suspect quite a few of you would simply explain to the client and provide a referral to a colleague willing to take over the account. As it was, Depp was the one who walked away -- and while the Mandels still want to get paid, it’s probably a relief.
Meanwhile, the lawsuits spell out a few of the parameters of Depp’s financial life that he would probably have rather kept private, revealing his relative desperation here.
The Mandels reveal several of his holding companies and spell out the names of the asset protection trusts that own his houses. That’s probably why there wasn’t any point in Heard suing for alimony: the trusts own the real estate and Depp himself is short on cash.
By the way, apparently there wasn’t a prenuptial contract after all. Everyone begged Depp to make sure there was one, but he blew it off.
Then there are the numbers themselves. While $560 million is a vast amount of money for one person to earn, the 17-year timeframe leaves Depp just a little short of true billionaire orbit.
Robert Iger of Disney receives higher compensation, year in and year out. Larry Ellison of Oracle gets more in stock options alone. And that’s not even reaching into billion-dollar hedge fund bonus pools.
Depp never really invested in anything beyond movie deals that pay residuals. Those passive annuities can be substantial -- maybe a few million annually per film -- but they’re never going to compensate for the lack of real wealth. Iger makes more in dividends than any given Pirates sequel will ever earn Depp.
And the cash payouts aren’t as huge as people think. The latest Pirates movie was worth $8 million, which means after taxes and management fees Depp would need to make one action blockbuster every 7 weeks to meet his reported cash flow needs.
That’s a punishing schedule and he’s evidently thinking of retirement some day. But the only real way out is to stop living like a billionaire and scale back to a modest hundred-millionaire lifestyle.
The Mandels couldn’t get him to understand the difference. Maybe his new accountant can. If not, there’s disaster ahead.