Rally Austin<\/a> through the city-funded community development corporation\u2019s Iconic Venue Fund. The loan enabled Heard to buy the building at 604\u00a0E. Seventh St.\u00a0\u2014 one of two Empire occupied\u00a0\u2014 with the stipulation that it remain a live music venue for 20 years.<\/p>\nIt may have marked the beginning of the end for\u00a0Sternschein\u2019s Empire.<\/p>\n
The fight over a \u2018failing music venue\u2019<\/p>\n
![\"Empire]()
<\/p>\n
Empire Control Room, a longtime fixture in the Red River Cultural District, is shut down.\u00a0<\/p>\n
Mikala Compton\/Austin American-Statesman<\/p>\n
For months,\u00a0Sternschein, who co-founded Heard Entertainment Texas with Dave Machinist in 2012, has been embroiled in a contentious lawsuit against\u00a0Sernovitz. He alleges a \u201chostile takeover\u201d of the venues after Sernovitz came on as an investor and independent consultant for Heard Presents in January 2025.\u00a0\u00a0<\/p>\n
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In his suit filed in state District Court last July,\u00a0Sternschein alleged the man he brought in to help save his business and consolidate ownership of its real estate instead is making off with the property where it has operated.<\/p>\n
\u201cI gave him control of the financial side of the business in order to restructure it, but what happened was he took control of the entire business by ripping the assets, and the opportunity that it had, out for himself,\u201d Sternschein said in an interview.<\/p>\n
Sernovitz called the allegations ridiculous. He said Sternschein has not presented evidence of the claims he has made in court documents \u2014 claims for which he was sanctioned by a judge. In fact, Sernovitz alleges that he uncovered systemic fraud and financial mismanagement in Sternschein\u2019s business practices.\u00a0<\/p>\n
\u201cI came in to save a failing music venue and I left when it looked beyond repair,\u201d Sernovitz said in an interview. \u201cNow that it is collapsing, we\u2019re trying to find a path to return it as a working live music venue.\u201d<\/p>\n
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He said that 606 Holdings LLC, the real estate holding company\u00a0Sternschein created with other investors to own the two venues, now plans to sell to another live music operator \u2014 and has received significant interest.\u00a0<\/p>\n
Though a sale could mean turning a profit on his investment, Sernovitz said he regrets ever investing with Sternschein, who now is a minority partner in 606 Holdings.<\/p>\n
Seeking a lifeline<\/p>\n
Empire was in bad shape in 2024.\u00a0<\/p>\n
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The venue Heard had operated since 2012 was in desperate need of cash after the\u00a0COVID-era downturn and declining bar receipts as younger\u00a0concertgoers replaced older ones who historically drank more.\u00a0<\/p>\n
That’s when Heard Entertainment looked to Rally Austin for help \u2014 a $2.1 million loan in September 2024 to purchase one of Empire\u2019s Seventh Street buildings with a plan to consolidate ownership of the properties where the venues operated.<\/p>\n
Despite the loan, the club\u2019s financial need was not diminished.\u00a0<\/p>\n
Rumors of money trouble had been swirling for months. Complaints of artists and staff not being paid on time \u2014 or at all \u2014 emerged. Lawsuits alleging nonpayment were filed in federal court against Sternschein over his\u00a0AdVentures Agency, which sells advertising for independent venues.<\/p>\n
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Visitors to the Red River Cultural District enter Empire Control Room & Garage on East Seventh Street in this August 2019 file photo.<\/p>\n
Steve Lewis\/American-Statesman<\/p>\n
He also was seeking new investors for Empire, court records show.\u00a0<\/p>\n
By the time he met\u00a0Sernovitz through an angel investor network, Sternschein was looking for quick cash. Sernovitz described himself as a serial entrepreneur with an interest in the Austin music scene.\u00a0<\/p>\n
\u201cThe business needs $1M overall to recapitalize from all of the things that happened in 2024,\u201d Sternschein wrote to him\u00a0in an email disclosed in court records.\u00a0<\/p>\n
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In February 2025, they agreed on Sernovitz making an investment in 606 Holdings. Details on the deal disclosed in court records differ, though, with\u00a0Sernovitz claiming it was $500,000 for a one-third share and Sternschein stating the investment was $400,000 without an ownership share.<\/p>\n
Beyond investing in 606 Holdings, Sernovitz was brought on as an independent consultant for Texas Music Holding Co. Group \u2014 the umbrella company for Sternschein\u2019s Heard Entertainment, AdVentures\u00a0and other enterprises.<\/p>\n
Still financially strapped, Sternschein and Heard continued selling off equity in 606 Holdings to other members.\u00a0<\/p>\n
Sternschein, through Heard Presents, began with 10% of the business, briefly had a much larger share for a plan to contribute the property at 604 E. Seventh St. to 606 Holdings, then sold most of that position for cash. When the property transfer did not happen on time,\u00a0Sernovitz used the failure as the basis for automatic penalties that shrunk Sternschein\u2019s percentage even further.<\/p>\n
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Financial fraud<\/p>\n
That\u2019s when, Sernovitz said, he discovered financial misrepresentation and fraud.\u00a0<\/p>\n
He alleged his investment and the Rally Austin loan were gained through misrepresented and undisclosed financial shortfalls around taxes and vendor payments. He said Sternschein had pledged the property as collateral for a loan for his other business interests, exposing investors to the unrelated debts of Sternschein\u2019s other companies.<\/p>\n
The alleged cross-collateralized loans could not be independently verified.<\/p>\n
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Sternschein denied the allegations in court filings, though, attaching emails with a general discussion of the budgetary shortfalls related to paying artists and vendors. He also denied the cross-collateralization.<\/p>\n
![\"Prixmo]()
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Prixmo performs at Empire Control Room for Free Week in 2023.<\/p>\n
Robert Hein\/American-Statesman<\/p>\n
Despite due diligence ahead of the investment and Sternschein\u2019s emailed general descriptions about shortfalls,\u00a0Sernovitz says it was only after gaining access to bank accounts and other financial records that he realized the company was in much worse shape than he was told, and that there was fraud.\u00a0<\/p>\n
\u201cI had access to all the company files, then it was very obvious,\u201d he said in an interview.<\/p>\n
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Sernovitz also alleges that Rally Austin was duped on its loan in another way, arguing in court documents that while Sternschein gained the loan through Heard Entertainment Texas he planned to transfer the title to 606 Holdings without disclosing the plan to the lender.\u00a0<\/p>\n
Rally Austin declined to comment and has fought requests for public records regarding the taxpayer-funded money flowing to Heard Entertainment. But emails in court documents show the public-private corporation was told about the plan in February 2025, months after the loan was made.<\/p>\n
Sternschein said he discussed the plan with the economic development organization before the loan was finalized.<\/p>\n
\u201cI can say that I was completely transparent with (Rally Austin) every step of the way, from my perspective,\u201d\u00a0he said in an interview.\u00a0<\/p>\n
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Losing control<\/p>\n
As the financial and real-estate disputes escalated,\u00a0Sernovitz began urging 606 Holdings members to replace Sternschein as manager of the company.\u00a0<\/p>\n
Sternschein said losing the manager role meant he couldn\u2019t protect his venue from being evicted. He also claimed the moves by Sernovitz were a bid to push Heard Entertainment\u00a0into bankruptcy.<\/p>\n
Sernovitz’s version is that Sternschein was slow walking the transfer of the 604 E. Seventh St. property purchased with Rally Austin money to the investor group, demanding Empire be protected from eviction by 606 Holdings before he did so. Those were terms to which\u00a0Sernovitz and other investors would not agree.<\/p>\n
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Documents submitted to the court say the property transfer was tied to the sale and the previous owner was issued shares in 606 Holdings. Instead, it\u00a0took months and a court fight to be resolved.<\/p>\n
Sternschein denied he was holding the property hostage.\u00a0<\/p>\n
\u201cAt the end of the day, did we have any intention to not transfer the asset? Absolutely not,\u201d he said.<\/p>\n
By then at an impasse, Sernovitz terminated his consulting agreement and demanded payment of $40,000 for expenses and, according to court records, began contacting other investors.<\/p>\n
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In a memo emailed to 606 Holdings partners, he wrote that having Sternschein as the holding company\u2019s manager would lead them to \u201crisk losing the entire investment to foreclosure.\u201d He encouraged the partners to remove Sternschein on the basis of his now-reduced ownership, mismanagement, making deals without shareholder approval and a conflict of interest stemming from the idea that \u201cthe tenant shouldn\u2019t also be the landlord.\u201d<\/p>\n
Sternschein said the memo made \u201cuntrue and misleading statements,\u201d saying in court records it was simply a step to take control of the property.<\/p>\n
\u201cI believe he saw the opportunity to acquire a valuable piece of property for below market value by exploiting the instability that we were experiencing,\u201d Sternschein said.\u00a0<\/p>\n
Sernovitz said his push to remove Sternschein was to protect his investment and warn other partners about the problems he had found. Besides, he said, there are simpler\u00a0ways to purchase a piece of land.\u00a0<\/p>\n
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\u201cIt\u2019s nonsense,\u201d Sernovitz said. \u201cInvesting in a nightclub as a minority owner and then trying to secretly take over the company as a scheme to get a piece of real estate\u00a0\u2014 like, it\u2019s just ridiculous. The whole premise is ridiculous.\u201d\u00a0<\/p>\n
A judge later ruled Heard Entertainment was properly removed as manager of 606 Holdings at a September 2025 members meeting. A replacement manager selected by the members continues to control the real estate company.<\/p>\n
Lawsuit-palooza<\/p>\n
But the back-and-forth war of words continued. It\u00a0escalated with Sernovitz sending letters in June 2025\u00a0demanding payment from his consulting agreement.\u00a0<\/p>\n
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Sternschein then sued\u00a0Sernovitz and his Global\u00a0Worldwide International 2 LLC\u00a0and Global Worldwide International 3 LLC\u00a0in July 2025.\u00a0<\/p>\n
A month later, Sernovitz countersued.<\/p>\n
Sternschein\u2019s suit\u00a0said the memo Sernovitz wrote to investors warning of mismanagement was business disparagement and a breach of fiduciary duty. Sernovitz argued it was free speech protected by the First Amendment.\u00a0<\/p>\n
![\"Insane]()
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Insane Clown Posse perform at Empire Control Room in October 2016.<\/p>\n
Kelly West\/American-Statesman<\/p>\n
A judge agreed, dismissing the claims of business disparagement and breach of fiduciary duty, finding the suit was in retaliation for Sernovitz\u2019s protected speech. Ultimately, state District Judge Jessica\u00a0Mangrum ruled\u00a0in December the lawsuit was brought in an\u00a0attempt to\u00a0silence Sernovitz through harassment and awarded him $68,000 in attorneys\u2019 fees and another $5,000 in sanctions.\u00a0<\/p>\n
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But the success was short-lived, as Sternschein amended his lawsuit to continue the case.<\/p>\n
\u201cAnd then he filed an amended complaint, which is basically the exact same stuff again \u2026 mixed up in a different way,\u201d\u00a0Sernovitz said.\u00a0<\/p>\n
Since then the case has continued to a third amended petition, with Sternschein alleging that Sernovitz stole company data, accusing him of\u00a0 trade secret misappropriation, theft of property and breach of covenant not to compete.<\/p>\n
Sternschein alleges that\u00a0Sernovitz downloaded internal documents prior to terminating his consulting agreement. The suit points to email confirmations of\u00a0Google Takeout, a tool for downloading data, being used.\u00a0<\/p>\n
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Finally, saying he could not afford to continue Sternschein dropped nearly every claim in his lawsuit\u00a0shortly before a summary judgment hearing scheduled for July 2.<\/p>\n
\u201cI\u2019ve done everything I can to overcome this honorably, but at the point I\u2019m at, I can\u2019t even pay for an attorney to appear in court for me or for the business,\u201d he said.<\/p>\n
Sernovitz said Sternchein simply did not want to go back to court with no proof to back up his claims.<\/p>\n
What\u2019s next for Empire?<\/p>\n
In July, 606 Holdings got a court order to evict Empire from the property.\u00a0<\/p>\n
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The loan from Rally Austin stipulates the property must remain a live venue for the next 20 years. It doesn\u2019t specify that the business must remain an independent venue but Sernovitz said that\u2019s the outcome 606 Holdings would prefer as it looks to sell.<\/p>\n
\u201cWe\u2019ve got about a half dozen active conversations. If Live Nation or AEG (Presents) were interested, we\u2019ll talk to them\u00a0\u2014 we are talking to them. But the goal is to find somebody who could buy it and keep it independent,\u201d he said.<\/p>\n
Travis Central Appraisal District records list the parcels associated with 606 Holdings with a combined appraised market value of $3.6 million, though appraisal values are used for property-tax purposes and do not necessarily reflect what the properties could sell for, particularly given the venue-use restrictions.<\/p>\n","protected":false},"excerpt":{"rendered":"In this 2014 file photo, electronic dance music artist Skrillex performs at Empire Control Room at South by…\n","protected":false},"author":2,"featured_media":392027,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[132,134,133],"class_list":["post-392026","post","type-post","status-publish","format-standard","has-post-thumbnail","category-austin","tag-austin","tag-austin-headlines","tag-austin-news"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/posts\/392026","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/comments?post=392026"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/posts\/392026\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/media\/392027"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/media?parent=392026"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/categories?post=392026"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/tags?post=392026"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}