Epilady Makers Sue to Refute Bankers’ Claims : Lawsuit: In their countersuit, the Krok family calls the financial firms’ charges of looting their struggling business a ‘smut campaign.’

The embattled Krok family, which rode to fame in the late 1980s by selling the Epilady hair remover, brought a countersuit Monday, accusing their firm’s big banks of waging a humiliating but groundless “smut campaign” to extract a settlement in a legal dispute.

The countersuit, filed in federal court in Los Angeles, also charged that two of the Krok sisters were fraudulently duped into personally guaranteeing a $25-million loan by the main lender, Bank of New York. The loan was issued early this year to the family’s Santa Monica-based firm, EPI Products U.S.A., by the Bank of New York, Daiwa Bank and Bank One.

Monday’s salvo was a reply to a suit brought in July by EPI’s banks, which are seeking to recover their loan from several members of the Krok family and other EPI officers. The banks accuse EPI’s principals of looting the business, partly by secretly diverting “more than $20 million into other enterprises in which they were personally involved,” including a Broadway play, real estate and automotive supplies.

EPI, whose annual net sales zoomed to more than $150 million shortly after it began marketing Epilady in 1987, filed for protection from creditors in August under Chapter 11 of the U.S. Bankruptcy Code. The firm was devastated by, among other things, heavy returns of the Epilady--once a smash-hit personal-care product--by women who couldn’t tolerate the pain it caused in pulling out hair by the roots.

The Kroks’ countersuit is intended to block the banks’ collection efforts and seeks more than $100 million in actual damages and undetermined punitive damages. It alleges that the banks made baseless charges of financial fraud “to extort money” mainly from Solomon (Solly) Krok, the 61-year-old South African businessman who is the family patriarch.

In the countersuit, the Kroks accuse the banks of inflicting emotional distress on the family and doing “irreparable harm to their reputations.” It maintains that Solly Krok’s “numerous charitable and fund-raising activities” have been undermined because potential donors “now look upon Mr. Krok with distrust and question his veracity and credibility in light of the wild and reckless allegations.”

The filing also charges that a Bank of New York loan officer fraudulently induced sisters Arlene Krok and Sharon Krok Feuer to personally guarantee the $25-million loan by misrepresenting the guarantees as only a “formality” and “window dressing.” The Kroks also say the loan officer told the sisters that the guarantee would be cancelled within six months, when in fact the bank planned to hold them to the guarantee.

Mark A. Samuels, a lawyer representing the banks, said he has not seen the Kroks’ counterclaim and thus would not comment.