FundAmerica Top Executives Fired, Sued for Fraud : Litigation: The company’s shareholder alleges that the former president and chairman diluted the value of the holding company’s stock.
FundAmerica President Mitchell G. Blumberg and Chairman Peter L. Bradshaw have been fired and are being sued for fraud by sole shareholder FundAmerica Holdings Inc., the company announced Monday.
George Davis, the sole director and president of FundAmerica Holdings, fired the two company officials last Friday and appointed Robert E. Breen as the new president. Breen has been with the company for two years, most recently as vice president of marketing.
In the lawsuit filed in Orange County Superior Court in Santa Ana on Monday, FundAmerica Holdings alleges that Blumberg and Bradshaw threatened to lie and aid a criminal prosecution of the company in Florida unless the company paid them more than $25,000.
The lawsuit also charges that Blumberg and Bradshaw diluted the value of the holding company’s stock by issuing 900,000 unauthorized shares in an attempt to gain control of the company and that they are jeopardizing FundAmerica’s bankruptcy settlement by refusing to release a certificate for the original 100,000 shares of the company, which they held in trust for Davis’ company.
Hansa Bank & Trust required a security interest in the original 100,000 shares when it granted the company a $3-million line of credit as part of its reorganization, and Blumberg and Bradshaw’s refusal to turn over the certificate could jeopardize that credit, the lawsuit alleges.
Blumberg, a Houston developer, became president of the troubled network-marketing company last August after president Howard Ruff, the nationally known investment guru, was fired from the post just one week after being hired.
Ruff, who replaced company founder Robert T. Edwards, who has been accused of fraud, said he thought that FundAmerica was an “honest business” when he came in but quickly changed his mind upon inspecting Edwards’ books more closely.
Ruff said he was ousted by friends of Edwards, although he declined to elaborate. Florida authorities arrested Edwards last July and charged him with operating an illegal pyramid scheme. His fraud trial is scheduled for June.
FundAmerica was founded as a consumer-buying club, offering its members cash rebates on services such as long-distance phone calls, hotel reservations and airline tickets. The company charged people up to $3,200 to become director-level sales representatives who could earn commissions for bringing in new members.
But the Florida attorney general’s office said the recruitment practice constituted a pyramid scheme. The company sold more than 2,500 director positions in Florida alone between March and July, 1990.
In December, a federal bankruptcy court judge approved a two-part settlement that called for FundAmerica to repay $19.3 million owed to its creditors and cleared the way for its emergence from Chapter 11 bankruptcy protection later this year.
Earlier, the same judge had rejected a recommendation by a court-appointed examiner to remove Blumberg and other FundAmerica managers because they allegedly retained close ties to Edwards.
Blumberg denied the allegations, and U.S. Bankruptcy Judge James N. Barr agreed that there was no evidence at the time that warranted Blumberg’s removal.
On Monday, however, FundAmerica issued an announcement about Blumberg and Bradshaw’s dismissal and said they were being sued on several grounds, including breach of fiduciary duty, constructive fraud, fraudulent misrepresentations, breach of proxy agreement, conspiracy and conversion.
Neither Davis nor attorneys for the company returned phone calls Monday.
