Judge Dismisses Fraud Claims Against Shvo In Core Club Dispute

A judge has dismissed most of the claims lobbed against Michael Shvo by the members-only Core Club, which accused the developer of fraud. 

The ruling, issued Saturday, is a major victory for Shvo and his eponymous firm, which has been engaged in a heated legal battle since 2024 with Core Club. The club operates a location in Shvo's 711 Fifth Ave.

The original complaint, filed by Core Club co-founders Jennie and Dangene Enterprise in June 2024, alleged that Shvo had deceived them to seize control of the company.

In 2020, Shvo met with Jennie Enterprise and promised to invest approximately $100M to develop three new Core locations in New York, San Francisco and Milan. Two years later, the partners signed an agreement that provided Core with a $1M loan. In exchange, Shvo could exercise an option to purchase a 50% stake in the business for $1.

But in building out the spaces, Shvo “missed deadlines, provided inaccurate budget projections, drove high turnover on his team, and oversaw substandard construction work,” Core Club's founders claim.

In its lawsuit, Core Club sought to recover more than $600M in damages over what it called fraudulent behavior. 

But New York State Supreme Court Justice Andrea Masley dismissed 13 of the club's claims, including fraud and breach of fiduciary duty. She narrowed the scope of the remaining three, allowing the litigation to proceed despite Shvo's attempt to have it dismissed in its entirety.

Masley wrote that Core’s lawyers contradicted themselves in their assertions of which contracts were valid and failed to meet technical legal standards for breach of contract and undue influence. She also ruled that any purported failure to deliver a real estate project as promised didn't raise to the level of fraud.

Since Enterprise and her lawyers described Shvo as “a real estate developer with a checkered past, including a felony conviction for tax evasion,” Masley found that the Core Club founders should have done more due diligence before partnering with him. 

Two claims were voluntarily withdrawn by Core’s lawyers. 

Core Club is left with three claims that essentially boil down to contractual disputes. The largest business claims still standing surround Shvo’s delivery — or lack thereof — of turnkey spaces and whether he has a stake in the company under the option agreement. 

The judge also allowed Core to move forward with its allegation that Shvo racked up an $80K tab by using the club’s restaurant and event spaces, which he then refused to pay. The developer allegedly hosted an event for his child’s school, a birthday party and weekly religious group meetings at Core’s New York City location. 

In addition to the three proceeding claims, Core filed a proposed amended complaint in November, escalating the allegations to include racketeering. The attorneys must receive consent from the court to amend the complaint.

“The Court’s recent decision addressed what is now a years-old, superseded complaint filed by former, terminated counsel,” Core Club attorney Marc Kasowitz said in a statement. “That proposed amended complaint alleges a corrupt pattern of fraud and abuse that caused extraordinary harm to our clients. The truth will come out in Court, and CORE will prevail.”

Shvo's attorneys have argued that Core Club's lawsuit is a ploy to avoid coughing up millions in unpaid rent and debt. A judge prevented him from evicting Core from 711 Fifth Ave. but required Core to stay current on its lease and maintain its ability to pay back any rent the court may determine it owes. The club is allegedly already in default on over $3.5M in rent.

Lease agreements filed in court show Core was to pay rents starting at $10M per year at 685 Fifth Ave. and $8M at San Francisco’s Transamerica Pyramid. By the end of the 20-year leases, rent would escalate to over $18M and $9M, respectively. Rents for 711 Fifth Ave. were redacted from court filings.

In court filings, attorneys for Shvo cited a settlement with the U.S. Attorney for the Southern District of New York. Prosecutors charged Core with improperly receiving more than $4M in Covid-era financial aid intended for small businesses, including from the Paycheck Protection Program.

Under the agreement, Core would have had to pay more than $8M to settle, but, based on an assessment of Core's financial statements, the amount was reduced to $360K. 

Shvo attorney Morris Missry claims it cannot both be true that Core can afford to pay back rent but not pay the Justice Department’s fine. He asked the judge to allow Shvo to evict the tenant as a result.

"It's ironic that Core Club leveled baseless fraud allegations against Shvo, which were dismissed, yet Core Club itself engaged in actual fraud—admitting to the U.S. Department of Justice that it improperly took over $4 million in Covid relief funds from taxpayers it had no legitimate right to use," Missry said in a statement following the judge’s ruling on Saturday. 

Core claims the Covid relief funds were approved by both the bank and the Small Business Administration and were used as specified by government guidelines. It wasn’t until 2024 that the government told private clubs they were technically ineligible for the assistance.

“True to form, Michael Shvo has badly misstated the record,” Kasowitz said in his statement. “CORE’s affiliates are pleased to have resolved the PPP case with the government last August.”

Shvo's nationwide portfolio, built up before and during the pandemic with the backing of German pension funds, has faced challenges amid reportedly slow sales. He and his partners sold the Transamerica Pyramid in San Francisco for $700M after spending $1B to acquire and redevelop the office tower. They also have offloaded development sites in Miami Beach, including one via a deed-in-lieu-of-foreclosure.

Shvo's primary backer during this period, Bayerische Versorgungskammer, is looking to replace him as an investment manager as it estimates it could lose $1B of its $1.9B investment in Shvo properties.