Former Allies : Fabulous Inns Sues Shareholder Over Stock Buys

Less than two weeks after settling a bitter, 2-year-old legal battle for control, Fabulous Inns of America on Thursday filed suit against its largest shareholder, accusing him of insider trading and of improperly trying to take control of the company.

Chula Vista investor Frank Ferreira, who now owns about 30% of Fabulous Inns stock, also attempted to “greenmail” the company by demanding that current management buy back his shares for about $10 per share, far in excess of the current $4.75 per share trading price, according to the lawsuits.

The suits, filed Thursday in both federal and state court, ask that the shares Ferreira has bought since Aug. 15 be placed in a trust. Management also wants a temporary restraining order that would prohibit Ferreira from either selling or buying additional shares of Fabulous Inns stock.

Ferreira on Thursday denied any wrongdoing and called for a special shareholders meeting to elect a new slate of directors.

Staunch Ally

During the past two years, when an ousted management group tried unsuccessfully to regain control of the Mission Valley hotel company, Ferreira was a staunch ally of current management, led by former dissident shareholders Jeffrey Krinsk and David Yardley. They accused members of the ousted group of obtaining their stock illegally and improperly profiting from their alleged self-dealings.

But relations soured last month when Ferreira refused to sign a company-backed, out-of-court settlement with the ousted group.

At the time, he charged that the former management was getting “off too easy.”

The settlement called for the ousted group to sell its stock--48% of the total outstanding--back to the company for 1.6 cents per share, or about $15,000. In addition, they would receive about $185,000 to pay their legal fees.

The rest of the settlement terms are under a court-ordered seal.

Pete Shenas, Ferreira’s attorney, on Thursday said he has filed action in the 4th District Court of Appeal to stop the settlement. In addition, Shenas wants the appellate court to reimpose a previous injunction that limits Krinsk’s and Yardley’s ability to spend corporate funds.

Both sides on Thursday accused the other of trying to improperly control Fabulous Inns.

“We didn’t spend two years cleaning up the company to find that a former confederate was indulging in improper activities that are hard to differentiate from those of the people we (ousted),” Krinsk said.

Charges Countered

Ferreira countered that “when they thought they had a free hand, they started to do the same things for which we ousted the previous group--self-dealing.”

He said that Krinsk and Yardley wanted to “pay out attorneys’ fees, give themselves stock options . . . and big bonuses and salaries.”

Krinsk denied Ferreira’s charge but said he wanted the attorneys to be paid for their two years of work.

In the lawsuits, Fabulous Inns accused Ferreira of trying to obtain “absolute control” of the company and of demanding that management make payments to former stockbroker Wendy Rice, “with whom Ferreira has maintained a close personal relationship,” and to real estate broker Fern Nimon, a business associate of Ferreira. Neither Rice nor Nimon is due any funds, according to the lawsuit.

The lawsuit also alleged that Ferreira has withheld information about his stock purchases from current management and claimed that at least 130,000 of his 300,000 shares have been purchased “off-the-market in individually negotiated transactions with shareholders.”

Ferreira labeled the allegations “absolutely false and absurd.”