2 FundAmerica Officials Challenge Their Firings : Management: The struggle over the company’s leadership may further complicate its efforts to emerge from Chapter 11 proceedings.
FundAmerica President Mitchell G. Blumberg reasserted his control of the troubled network-marketing company Tuesday, claiming that Canadian lawyer George Davis had no authority to fire either him or Chairman Peter L. Bradshaw.
“Davis doesn’t have the right to fire us,” Blumberg said in a wide-ranging interview. “There is no legitimacy whatsoever to the charges or pretensions of the people who claim to be in ownership of the company.”
Davis, president of FundAmerica Holdings Inc., the Canadian parent of FundAmerica, issued a terse press release Monday, saying that he was now the sole director of FundAmerica, had fired Blumberg and Bradshaw and had sued both men for fraud and several other charges.
Davis was traveling to Vancouver, Canada, Tuesday and could not be reached for comment.
Blumberg, a Houston businessman who took over the leadership of FundAmerica last summer shortly after company founder Robert T. Edwards was arrested in Florida on fraud charges, said he and Bradshaw were informed of Davis’ decision at a breakfast meeting at the Four Seasons Hotel in Newport Beach Monday.
“He invited us to have breakfast with him . . . and then he told us that at that moment, security guards were changing the locks at the company offices and taking over the premises,” Blumberg said. “It gives a new meaning to the words hostile takeover. “
Later Monday, however, Blumberg, Bradshaw and Davis all appeared at a bankruptcy hearing in Santa Ana. The company is trying to emerge from Chapter 11, and Blumberg said FundAmerica is just a week or two away from resuming marketing operations. But U.S. Bankruptcy Court Judge James Barr made it clear that he was not pleased about the latest turmoil at the beleaguered company, Blumberg said.
“He kind of put everyone on notice that if things did not work out properly, he might have to contemplate an alternative (Chapter 7 liquidation),” Blumberg said.
After the company was formed five years ago, it acquired 100,000 members in eight states and quickly reaped huge profits. For a $100 membership fee, consumers were promised discounts on telephone calls, travel and financial services. But the real money was to have been made by members who bought blocks of memberships at a discount and then sold them at full value, both to individuals and other prospective membership marketers.
Authorities in several states, however, saw the company as a pyramid scheme, with those at the bottom enriching a few at the top.
Blumberg said he and Bradshaw have devised a new marketing plan that will not run afoul of state regulators and are eager to put the company back in business. Until the dispute with Davis is resolved privately or in court, Blumberg said, he and Bradshaw will continue to work out details of the company’s marketing plan out of the Irvine law offices of Bryan, Cave, McPheeters & McRoberts.
Davis has appointed former vice president of marketing Robert E. Breen as the new FundAmerica president.
The dispute stems from Davis’ purported ownership of FundAmerica Holdings Inc. Blumberg and Bradshaw maintain that after Edwards was arrested, he granted an irrevocable voting trust to Bradshaw for all 100,000 shares of FundAmerica. Soon after that, Bradshaw, the company’s chairman and chief financial officer, named Blumberg president and a company director.
During FundAmerica’s bankruptcy proceedings, however, Davis--a longtime lawyer for Edwards--formed a Canadian company through which he claims to have purchased the controlling interest in FundAmerica Holdings, Blumberg said. Edwards had previously sold that interest to yet another Canadian businessman, Jim Armstrong.
Bradshaw and Blumberg claim that Davis’ purchase of the holding company was invalid because of Davis’ close ties to Edwards.
Even so, Blumberg said, he and Bradshaw moved to solidify their own control of the company, fearful that Davis would attempt to abrogate the irrevocable trust. In March, acting as co-directors of FundAmerica, Blumberg and Bradshaw issued themselves in trust 104,082 new shares of company stock, giving them a 51% majority, even if they lose control of the original 100,000 shares.
That action was one of several Davis cited in his lawsuit Monday alleging that Bradshaw and Blumberg had breached their fiduciary duty to the holding company.
“That kind of claim is frivolous, outrageous and libelous,” Blumberg said about the lawsuit. “We wholly deny everything that was said in there.”
