Toy Maker Accepts Suit Settlement : Litigation: Two former executives accused of embezzling $2.1 million from With Design In Mind International agree to pay $250,000 and forfeit stock.
Three months after suing its former top executives for allegedly embezzling $2.1 million, With Design In Mind International Inc. has settled out of court for roughly half that amount in cash payments and the redemption of stock.
The struggling Chatsworth maker of toys and novelty gift items said last week that Steve Zuloff, its former chief executive officer, and Barry Benjamin, previously president and chief financial officer, agreed to pay $200,000 in cash and provide a promissory note for an additional $50,000.
Without admitting guilt or liability, Zuloff and Benjamin also agreed to forfeit 703,753 shares of stock they owned in the company. With Design’s stock, which traded above $8 a share last year, has been selling in recent weeks in the $1.375 range. That would put the entire settlement figure at about $1.2 million. With the redemption of stock, there are 3 million shares of With Design’s common stock now outstanding.
Sheldon F. Morick, With Design’s new president and chief executive officer, said the company was happy to settle the case.
“Rather than going through protracted litigation and not really knowing what resources they had,” Morick said, “it seemed like the prudent thing to do.”
Zuloff, a company co-founder and its chief executive since 1988, and Benjamin, a company director since 1988, both resigned in June after allegations of misconduct surfaced. Telephone messages left at their homes were not returned. Their attorney in Washington, D.C., also did not respond to calls.
With Design still faces a shareholder lawsuit over the alleged embezzlement. That suit, which seeks class-action status, was filed in late September in federal court in Los Angeles and accuses the company and the two former executives of violating federal securities laws. Morick said that lawsuit, as it relates to the company, contained numerous errors and lacked merit.
With Design brought its complaint against Zuloff and Benjamin in early September after learning through employees in June about possible misconduct. After a two-month investigation, With Design accused Zuloff and Benjamin of collaborating in an elaborate scheme that included improperly paying sales commissions to a company owned by their children, some of whom were also named in the suit.
The company demanded Zuloff and Benjamin pay With Design $2.1 million plus $150,000 in investigation expenses, but the two apparently refused, forcing With Design to file suit.
With Design was incorporated in 1986 and its investors included Los Angeles Dodger pitcher Orel Hershiser. The company has been struggling in the last couple of years, partly because of the recession.
In its latest financial report, the company posted a loss of $2.76 million for the nine months ended June 30 on sales of $2.9 million, compared with a loss of $683,181 on revenue of $3.59 million in the similar period a year earlier. With Design also had $4.3 million in cash and cash equivalents.
