Gradco Founder Misused Firm’s Funds, Suit Says : Litigation: The company claims Keith Stewart diverted $700,000 to settle his divorce and used $150,000 for a Rolls-Royce.
Gradco Systems Inc. has alleged in a lawsuit that former chairman and chief executive officer Keith B. Stewart misappropriated funds from the copier and printer products company for personal use.
According to a recent filing with the Securities and Exchange Commission, Gradco charges in court papers that Stewart improperly obtained company funds in a stock transaction involving the company’s Japanese subsidiary.
Stewart, the founder of Gradco, could not be reached for comment. He resigned in October after losing a bitterly fought proxy battle with an investor group headed by New York publisher Martin E. Tash.
The allegations are contained in a counterclaim filed in December in Orange County Superior Court in Santa Ana. The claims are part of an ongoing lawsuit first filed by Tash against Stewart and other Gradco directors and officers in August.
The company claims that Stewart diverted $700,000 in company funds to settle a divorce and used company funds to buy a 1983 Rolls-Royce for $150,000. The suit said Stewart also used company money to pay a personal pledge of $200,000 to a university and to pay $162,736 to the captains of his personal yacht.
The suit also said former company directors breached their fiduciary responsibilities by approving Stewart’s actions.
The company also revealed that four company officers, including Newton Lee, former Gradco corporate secretary, sued the company on Feb. 8, alleging that the company breached its “golden parachute” employment contracts with them.
In the same filing with the SEC, the company reported a loss of $2.9 million for the third quarter ended Dec. 31, compared to a loss of $1.7 million a year earlier. Revenues for the quarter were $20 million, down slightly from $20.5 million a year earlier.
The company attributed the loss in part to $712,000 in costs associated with the proxy fight. The company also lost $680,000 on the sale in January of two of its Dyna Five Corp. subsidiaries and a decision to close another unprofitable subsidiary in Germany. Bernard Bressler, corporate secretary for Gradco, declined to say how many employees have lost jobs as a result of the changes.
To improve its financial position, Gradco officials said Thursday they are negotiating to sell some of its printer product assets to its Gradco Japan subsidiary.
Gradco, a money-losing parent company that has been strapped for cash in the past year, is seeking to sell to its Japanese subsidiary, its printer inventory, tooling and other equipment by mid-1991. Any remaining printer assets will be sold off to other parties or otherwise disposed of, the company said in a statement.
The transaction is an internal move that will improve the parent company’s financial condition and transfer most of the company’s operations to its Japanese subsidiary, said James Owens, treasurer. Gradco Japan is majority-owned by Gradco and minority-owned by a group of Japanese investors.
Gradco previously said it would transfer its copier business to Gradco Japan in exchange for $17 million, which would be used to pay off outstanding debts. That transaction is expected to be completed by March 31, about six months earlier than expected.
