What do a $100K fishing yacht, shell corporations and Taylor Swift have in common? They all are allegedly involved in the massive fraud and bribery scheme Mattress Firm claims was carried out by two of its former executives and its national retail broker.

The Houston-based mattress retailer is suing the former heads of its real estate division, Bruce Levy and Ryan Vinson, along with former Colliers International Atlanta retail executive Alexander Deitch and a handful of developers, claiming they conspired to defraud the company of tens of millions of dollars.

In the lawsuit, filed late last month in Harris County, Texas, Mattress Firm alleged the cohort was responsible for leases signed for above-market prices, then conspired to sell the properties where the company's new locations opened for substantial profits. It claims Deitch and Levy secretly owned stakes with the developers that owned some of the properties, and used their control of Mattress Firm's real estate decisions to profit personally from the sales.

The alleged scheme may have started in 2009, when Levy was hired by Mattress Firm to help it expand its retail empire across the country. Today, the firm operates more than 3,400 stores. According to the lawsuit, Levy, Deitch and Vinson were responsible for some 1,500 new stores during the more than seven years they directed Mattress Firm's real estate operations, not even accounting for hundreds more lease renewals.

In 2010 — a year before Mattress Firm became publicly traded — Levy hired Vinson and tapped Deitch to help roll out the company's national growth. Many of the allegedly inflated leases and sales detailed in the suit were not placed on a specific timeline. Hicks Thomas LLP partner John Thomas, who is representing Mattress Firm, said the lack of a timeline was part of the company's litigation strategy.

The Allegations

In the suit, Mattress Firm details a slew of alleged kickbacks and payoff schemes with a group of developers — Nashville-based Oldacre McDonald, Illinois-based Quattro Development, Florida-based Win-Development and Kirkland, Washington-based Madison Development Group — and the gifts those developers granted to Levy, Vinson and Deitch in exchange for leases that, at times, exceeded area rental averages and were longer than what the retailer normally agreed to.

While the exact number of stores affected by the alleged scheme was not disclosed in the lawsuit, attorneys for Mattress Firm did detail a number of specific instances in which developers built stores with Deitch as a silent equity partner, sometimes with Levy.

In Rogers, Arkansas, Quattro acted as a landlord that allegedly shielded an entity owned by Deitch called Chase Ventures, which placed Mattress Firm in a lease that was two years longer than its average lease length, and with rents "substantially above market." Quattro and Chase Ventures later sold the building for a "substantial profit," the suit alleges.

Deitch secured another deal in Colorado Springs in an undisclosed joint venture with Oldacre McDonald, which again eventually sold the location for profit.

Oldacre McDonald also earned Mattress Firm's warehouse business in Albany, Georgia. The firm moved to a larger property owned by the developer in an 11-year lease that charged Mattress Firm $285K more than it was paying at its previous location, according to the suit. Six months after the deal was done, the developer sold the property for a "substantial profit," the lawsuit claims.

Levy and Vinson shuttered a Mattress Firm in Cartersville, Georgia, charging $25/SF, and opened a new location half a mile away. That store was built by Win-Development and charged $36/SF. After the deal was done, Win-Development sold the property at a profit, according to the suit.

Mattress Firm inked two new leases on the same day with Madison Development in Spokane, Washington. Both leases were "significantly longer in time and higher than average rents" at $38/SF, the suit alleges. Other Mattress Firm stores in the same market were paying $24/SF and $25/SF, and both new properties were sold "for a substantial profit" within seven months of lease execution, according to the suit.

Taylor Swift

'Active Intent' To Conceal

The lawsuit claims one portion of the scheme alone — a $50K broker fee per lease — could have cost the retailer at least $40M in excess payments. Since Levy and Vinson controlled the development budgets at Mattress Firm, the retailer alleges the duo was able to hide these fees in developments. In one instance, that arrangement was inadvertently emailed to Mattress Firm itself.

With an unnamed developer, Mattress Firm agreed to a new store in Baxter, Minnesota. The lease was allegedly executed on behalf of a shell company set up by Deitch called Preferred Realty, which received a $50K fee. At this time, the developer sent an email to Chase Ventures and copied a Mattress Firm employee.

In an emailed response, Deitch wrote, “Do NOT sent [sic] anything to MF with my chase ventures email address! Do not let this happen again!”

"This exchange demonstrates an active intent by Deitch to conceal the existence and nature of the kickback scheme," Mattress Firm writes in the suit.

Mattress Firm also alleges the “inner circle” of developers benefited numerous times from the lease arrangement. Of the 40 leases secured by Oldacre McDonald, 22 had length terms “significantly longer” than the retailer's average leases, and in 11 of those cases, Mattress Firm was paying rents “significantly higher” than comparable rents at other stores, in some cases just blocks away from the new locations, it claims.

Win-Development was given 43 development deals. Of those, 16 leases had longer-than-average leases and another 16 had rents higher than the average of stores in the same area. Quattro earned 17 development deals, six of which allegedly had longer lease terms than normal. And of the 17 development deals awarded to Madison Development, all but one had extended lease terms, with five of the sites having higher-than-average rents, the retailer claims.

To get these deals, the developers provided a number of gifts and real estate investment and outside business opportunities to Levy, Deitch and Vinson, Mattress Firm claims.

After earning 10 development deals, Oldacre McDonald gave the trio trips on a private jet and tickets to sporting events, according to the lawsuit. Oldacre McDonald principal John McDonald also allegedly co-purchased with Levy and Deitch a four-bedroom, 2,766 SF waterfront home in Summerland Key, Florida, for $1.6M, as well as co-invested in a $110K Crevalle fishing yacht.

The trio also invested $500K in a company McDonald owned, called Heritage 66 Co. The Nashville-based company sold the branded apparel of a "popular, American female recording artist" in China, according to the lawsuit. Thomas confirmed the artist was Taylor Swift.

Vinson was named president of Heritage 66 while still employed with Mattress Firm, and the company expected to generate some $100M in revenue in its first year of operation, Mattress Firm charges in the suit.

For its part, Mattress Firm alleges Win-Development provided exotic fishing and hunting trips, a trip to Costa Rica, expensive dinners and five-star hotel stays. The company claimed Levy co-purchased a five-bedroom house in Key West with Win-Development principal Jesse McInerney for nearly $2M.

Mattress Firm also accused Levy of having "explored investment [opportunities] in at least four [Mattress Firm] stores" with Win-Development through a shell company called Win-Preferred. At least one of those stores was alleged to have been flipped for a profit.

Other alleged kickbacks and side deals include co-investments with McDonald and Win-Development principal Owen Ewing on an unspecified number of Murphy Oil gas station properties without Mattress Firm's knowledge.

Mattress Firm went public in 2011, and saw sales rise from $400M to more than $3.5B in 2015. It purchased the country's second-largest mattress retailer, Sleepy's, for $780M the same year, giving the retailer more than 1,000 more stores.

In November 2015, Canadian brokerage Colliers International purchased its Atlanta Colliers affiliate, turning it into a company-owned office.

The Turning Point

By 2016, the alleged scheme by Levy, Vinson and Deitch came to an abrupt end.

In a quarterly filing with the Securities and Exchange Commission in August of that year, Mattress Firm announced it had fired two unnamed real estate employees and severed relations with its third-party real estate provider due to conflicts of interest with "real estate vendors," and for receiving "improper gifts."

The deal that appears to have brought the alleged scheme to a head occurred in Ocala, Florida. On an undetermined date, Deitch's shell company, Chase Ventures, attempted to buy a parcel for $500K. When Levy was copied in the correspondence with an unnamed seller's broker, Mattress Firm officials "discovered the fraudulent conduct and terminated Levy, Deitch and Vinson," attorneys said in the suit.

By August, Steinhoff International Holdings purchased Mattress Firm for $2.4B. At the time of the sale, one retail analyst said Steinhoff was "paying more than double Mattress Firm's last closing stock price," which was expected to "raise some eyebrows."