Firm That Seeks to Buy Brothels Is Named in Suit
A $6-million shareholder suit charging market manipulation and misrepresentation has been filed against Strong Point Inc., the tiny Newport Beach company that has made headlines with its efforts to buy two Nevada brothels.
The suit, filed Monday in Orange County Superior Court, charges that the company and its two top officers prevented Gemini Pacific Corp., a Newport Beach company, from selling the 145,000 Strong Point shares it purchased last summer.
The suit further charges that Strong Point officials have been operating the company to “create a great deal of excitement to the public, increase the stock value . . . then sell out.”
Strong Point President John Davis, one of the defendants in the suit, confirmed charges Tuesday that the company has not completed purchasing either of the two Nevada brothels it started buying in 1985 and is in default on the mortgage of a small Laguna Beach shopping center it bought last year.
Davis said Strong Point has still not purchased Mustang Ranch, the famous Reno-area bordello, because it has been unable to find financing for the $18-million purchase. In addition, he acknowledged that Strong Point has not closed escrow on its $1-million purchase of Sue’s Bordello in Elko, although the company has been operating the brothel for more than one year.
Strong Point had announced both deals in late 1985.
The suit is not the first business problem for two of Strong Point’s three founders.
One founder, Laguna Beach tax accountant Sid Binder, was convicted in late 1985 of mail fraud charges and sentenced to 2 1/2 years in federal prison.
Binder, who is appealing the conviction and is not a Strong Point officer, was found guilty of defrauding investors through the sale of desert land at inflated prices.
A second founder, Roger W. Garrity, Strong Point’s vice president, was accused by the U.S. Securities and Exchange Commission in 1981 of improper stock trading at the now-defunct Los Angeles brokerage house of Joseph Sebag & Co.
Garrity, who entered into a consent decree with the SEC not to associate with securities dealers, was found to be partially responsible for Sebag’s collapse.
Different Story Told
The suit filed by Gemini Pacific charges that in the time it has been restricted from selling its 145,000 Strong Point shares, the value of the stock has dropped from about $4 to about $1.50. The suit seeks actual damages of $443,750, general damages of $500,000 and punitive damages of $5 million.
Representatives of Gemini Pacific could not be reached for comment on the suit.
However, Strong Point attorney Michael Oswald of Newport Beach offered an entirely different version of the stock dispute, a story that indicates that Binder has had a falling out with the other two company founders.
According to Oswald, Gemini Pacific bought its 145,000 Strong Point shares from Binder within a year of Strong Point’s founding.
Oswald said that while Strong Point did not know of Binder’s original sale to Gemini Pacific, it learned of the transaction later when Gemini tried to sell the shares. Oswald said Strong Point was concerned and declined to authorize the transfer. Founding shareholders are often restricted as to the number of shares they can sell after starting a company.
Neither Binder, his representatives nor Gemini Pacific officials could be reached for comment on the sale. In its suit, Gemini Pacific does not reveal from whom it purchased the Strong Point shares.
Another indication of the souring relationship between Binder, Garrity and Davis is a second suit filed Monday in Orange County Superior Court. In that suit, Binder is seeking repayment of $60,000 that Garrity and Davis allegedly borrowed from him to start the company. Garrity could not be reached, and Davis would not comment on the suit.
