After years of success, brothers who founded Annapolis marketing firm caught up in legal quagmire – Capital Gazette

Dan White, a senior prosecutor in the St. Mary’s County State’s Attorney’s Office, zipped around the county’s circuit courthouse in late 2019, pausing only briefly to eat a Lifesaver for lunch. White, then 53, had made the winning arguments in several violent felony cases and jokingly compared himself to gritty characters portrayed by Clint Eastwood.

Around the same time White was swaggering around the Southern Maryland courthouse, the FBI was investigating his role at Compass Marketing, the Annapolis-based family business he founded with his younger brother, John, in 1998.

Dan White had moonlighted as general counsel to the marketing firm between working as a full-time prosecutor for two decades until his resignation from the state’s attorney’s Office this month.

With John as CEO, and an older brother, Michael, now a St. Mary’s County orphans’ court judge, serving as vice president of operations, Compass raked in millions in its first decade of existence, boasting big-name clients like Unilever, Gillette, Blistex and Slim Fast. The brothers came up with their business plan on the back of a napkin after a round of golf, John White told The Capital in 2006.

Compass established offices in Eastport and at its peak became known for its philanthropic efforts in the Annapolis community. The firm sponsored local windsurfer Farrah Hall in her campaigns for the 2008 and 2012 Summer Olympics, raised tens of thousands of dollars for the Maryland Chapter of the Leukemia and Lymphoma Society in 2010 and sponsored an annual 100-mile bike race to raise money for diabetes.

With that success came other opportunities for the White brothers, including a judgeship for Michael White, a 63-year-old retired police officer, who was elected to the orphans’ court in 2014 and reelected this fall; a job in the state’s attorney’s office for Dan White and a failed run for a House of Representatives seat for John, the youngest brother, in 2006.

But over the last four years, Compass has been embroiled in legal warfare, threatening to upend what was once a thriving business that reported more than $60 million in annual sales in 2006. More than a decade later, the White brothers began to feud over the company’s ownership, levying sweeping charges against each other in civil court, and prompting criminal investigations of their relatives, several of whom hold government posts in the Maryland judiciary and state law enforcement.

The federal inquiry into the activities of Dan and Michael White — based on allegations by their younger brother that they had misappropriated company funds — was one of several criminal investigations and civil disputes involving members of John White’s family initiated since the brothers’ relationship began to sour in 2018.

None of the criminal investigations have thus far resulted in a charge.

Compass, through John White, 53, now the chairman of the company’s board of directors after resigning as CEO in 2021, has filed a civil racketeering suit against several former employees, including his brothers. The lawsuit filed in February in U.S. District Court claims Dan and Michael engaged in a pattern of fraudulent behavior throughout their employment with the company by adding their wives and children to the company payroll, setting up secret bank accounts, using company money for personal expenses, conspiring with others to steal trade secrets and eventually, seizing control of the company’s computer network to cover it all up.

John White and Compass are represented by a cadre of high-profile lawyers including former U.S. Deputy Attorney General Rod Rosenstein and a team affiliated with the global law firm Morgan Lewis and Bockius. They say in the suit that an internal investigation “uncovered 14 years of substantial mail and wire fraud, money laundering, embezzlement, and attempted extortion” by the elder White brothers that was related to the departure of several employees who started a competing e-commerce company, Flywheel Digital. The suit claims Daniel and Michael used embezzled funds to help former Compass employees James “Chip” DiPaula Jr. and Patrick Miller start Flywheel in 2014. The suit also alleges DiPaula and Miller stole Compass’ trade secrets, leading to an “exodus” of additional Compass employees to Flywheel in 2016.

Today, Flywheel is owned by the British media giant Ascential plc, and has more than 400 employees based in offices in Baltimore, Seattle, London and Tokyo.

In the mid-2000s, Compass invested in digital marketing and e-commerce and developed a close relationship with Amazon and other large clients as the online shopping industry began to boom. Between 2002 and 2008, the company’s e-commerce department revenue increased from $284,894 to $3.8 million, according to the lawsuit, one of the few public records that indicate the worth of the private company. It is unclear what the company’s earnings were in recent years.

The lawsuit is awaiting a ruling from U.S. District Judge George Levi Russell III, who will determine whether the matter can proceed. No activity has occurred in the case since June after the defendants, Flywheel, Asciential plc, DiPaula, Miller, Dan, Michael and George White, filed multiple motions to dismiss the case.

Attorneys for those involved in the case did not return requests for comment or declined to comment.

In June last year, as he sought reelection to the orphans’ court, Michael White was asked about the legal turmoil at a recorded candidates forum.

John White and his attorney had “ventured off into a criminal area,” the Republican candidate said, and filed the racketeering lawsuit against himself and Dan, to “cover that up or to make it all right.”

Dan and Michael filed separate lawsuits in Virginia in 2019 and 2021 seeking to dissolve Compass. They allege John White destroyed the company through wasteful spending and securities fraud involving Tagnetics, an Ohio electronic shelf label company where he served as a co-CEO. The lawsuit refers to John White’s involvement in the company, which also goes by Powershelf, as a “boondoggle,” and alleges that he used Compass funds to prop up the failing company, later selling worthless stock to investors. They claim that their younger brother started retaliating against them when they reported the allegations to the U.S. Securities and Exchange Commission.

According to depositions and several emails filed in court, Dan and Michael called John “Bernie,” as in Bernie Madoff, who ran the largest Ponzi scheme in U.S. history. Madoff pleaded guilty in 2009 and was serving a 150-year prison sentence when he died in 2021.

Dan and Michael White’s attorney in the Virginia case, Douglas Kay, did not return requests for comment.

Stephen Stern, an Annapolis attorney representing Compass, said the brothers’ claims about Tagnetics were false and their allegations about fraud were untrue. John White’s racketeering lawsuit describes his brothers’ allegations and litigation as a “sham legal campaign” designed to cover up their own illicit activities.

The two brothers have stated, through multiple legal filings, that John White’s allegations against them are libelous, and amount to revenge for reporting his misdeeds.

The legal wrangling is also spiked with a question of ownership, as all three brothers own stock in Compass. Dan and Michael have argued that they, together, hold 50% of Compass’ stock, claiming their brother “illegitimately controls” Compass and has locked them out of the company’s affairs.

Stern said Dan and Michael White’s ownership claims were “categorically false,” stating they each only own about 16% of Compass stock, making them minority shareholders. Compass’ attorneys have filed exhibits in court demonstrating that John White owns 66% of the company, while the other two hold the remaining 33%.

A Virginia judge has declined both Dan and Michael’s motion for a default judgment against Compass as well as Compass’ motion to dismiss the matter.

The legal disputes all claim that the division between the brothers came to a breaking point in 2018, but they disagree on what caused the conflict.

In his lawsuit, John White states a “storm began brewing” in the company when Flywheel Digital was sold to Ascential plc for millions in November 2018. The complaint says that in the days before the sale, Michael White sent a companywide email “disparaging” John White.

Dan and Michael state in their lawsuit that during the same period, they discovered fraud involving Tagnetics.

John sent Dan and Michael an email in November 2018 terminating them as employees. They responded, saying he did not have the authority to fire them, and they continued working. Asked during a deposition what work he did after being terminated, Michael White said he “performed several payrolls … submitted several reports … paid several bills … put together several desks, fixed several chairs.”

John White has argued he dismissed the two as board members in February 2019, but the brothers’ claim they were illegally voted out. They said they stopped performing work for the company when they were locked out of the building a few months later.

The tension between the brothers grew from there, and litigation regarding Compass and Tagnetics started piling up.

In May 2019, John White hired former Anne Arundel County Sheriff Ron Bateman as a “special adviser to the CEO” of Compass. Bateman said in a deposition he called then-State Police Secretary William M. Pallozzi and stated that George White, Michael White’s son who worked in IT for the company, had locked the remaining employees out of the company’s network. The report prompted criminal and state police administrative investigations of George White, which eventually determined the claims were unfounded, but possible, a former Anne Arundel Assistant State’s Attorney wrote in a letter declining to file charges.

The allegation is the subject of an ongoing defamation lawsuit in Anne Arundel Circuit Court, in which George White states Bateman knowingly made a false report when he called Pallozzi. A hearing in the case is set for later this month.

Former colleagues of Dan White said that despite the prosecutor’s savviness in the courtroom, he was not often seen around the office and that most of his co-workers knew he was working on his side business. When he was in the office, his door was usually locked, said the co-workers, who spoke on the condition they would not be identified to avoid retribution. Some colleagues nicknamed him “Secret Squirrel” in reference to his apparently clandestine work.

In September 2019, after Dan White secured a grand jury indictment in a drug trafficking case, he pulled aside Maryland State Police cybercrimes investigator Sgt. Kemery Hunt, who was investigating George White and in St. Mary’s for an unrelated grand jury session. The prosecutor showed Hunt documentation listing himself as an owner of Compass, telling the investigator he was able to make decisions for the company, according to a state police report.

Throughout the 2020 state police report, obtained by The Capital through a public information request, Hunt notes that the FBI was handling a separate investigation of possible embezzlement from the company. No criminal charges have been filed in court, and an FBI spokesperson said in mid-December the bureau no longer had any open criminal investigations involving Compass. The bureau did not comment on the previous investigation.

The St. Mary’s County Sheriff’s Office later investigated a criminal complaint from Compass, according to Jason Babcock, a sheriff’s office spokesperson. The November 2021 complaint was forwarded to Dan White’s boss, longtime St. Mary’s State’s Attorney Richard Fritz, who in turn referred the matter to the Office of the State Prosecutor. The matter remains open.

Dan White continued to work in the St. Mary’s courthouse in the final days of his superior’s 24-year tenure in the state’s attorney’s office. He left the office this month alongside Fritz, who lost the 2022 Republican primary election to his former employee, Jaymi Sterling, Gov. Larry Hogan’s stepdaughter.

When John White sent the November 2018 email firing his brothers from Compass, he noted that they had not responded to his requests for a discussion about “financial matters as well as other concerns I have.”

He did not elaborate in the email, but foreshadowed a legal battle, stating he had hired a lawyer and telling each of his brothers that their cooperation in their firing “will substantially influence how your transition from the company is addressed.”

The brothers didn’t budge. Dan White told him the notice was “ridiculous” and rejected the emails, while Michael White warned against litigation.

“John, if you wish to destroy this company, you will be doing it through me, not around or with me,” he wrote. The part-time judge cautioned his brother against taking further legal action.

“You should put on your big boy pants,” he wrote. “You will need them.”