Huntington Harbour : Trial to Start in Case of Alleged Fraud in Divorce

The trial in the case of a woman who claimed that her husband convinced her that their $60-million business was worthless when they split property in a divorce settlement is scheduled to begin today.

Connie L. Stewart claimed that she believed her husband, Keith, and thus decided to settle for $750,000 and signed over her rights to 2.1 million shares of Gradco Systems Inc. stock.

Five weeks later, the privately held firm offered stock to the public at $18 per share.

Stewart claims that her husband committed fraud by not disclosing the pending stock offering or that underwriters had already valued the firm at $50 million to $60 million.

The Stewarts separated in 1971. In April, 1983, both signed the divorce settlement, in which the wife received a home in Huntington Harbour, property in Coto de Caza, an automobile and $6,000 per month, including support for two children.

Keith Stewart received the stock in the company, which held a patent for a device used for sorting documents produced by copying machines, according to the wife’s lawyer, Marvin Gross.

Lawyers for the husband claim that when the Stewarts separated, the firm was $1 million in debt and that its largest customer had just canceled its contract. The wife’s attorney proposed the settlement, the husband’s lawyers claimed, and Gradco at the time had no market value, “although it had speculative potential,” according to court papers.

Keith Stewart was president of Gradco and held 55% of its stock at the time of the settlement. His lawyers claimed that a Gradco official met “voluntarily” with a lawyer for Connie Stewart six months before the settlement and mentioned the possibility of a public stock sale.

Connie Stewart wanted the real assets of the marriage and was willing to give her estranged husband the business and “the right to sink or swim,” according to papers filed by the husband’s lawyer, Vernon W. Hunt Jr.

The trial, expected to take three weeks, is scheduled to open today in the courtroom of Superior Court Judge Judith M. Ryan in Santa Ana.