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July 29, 2010 |
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| December 04, 2009 |
By: Polyana da Costa |
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wo former partners are accusing the high-profile president and majority owner of Boca Raton-based Foreclosure.com of looting the company and refusing to pay them for their interest in the business.
The allegations are the latest salvo in a legal battle that started in 2005 against Foreclosure.com’s founder and president Brad Geisen, who is often quoted by the news media on the foreclosure crisis.
The accusations come from Gregory Sullivan and Dominic Muttillo, former employees and partners in the company. They are minority shareholders of Foreclosure Freesearch Inc., the parent of Foreclosure.com. The Web site that has gained popularity since the collapse of the housing market because of its national foreclosure database.
In their most recent claims, Muttillo and Sullivan say Geisen “submitted fraudulent and falsified documents in order to undervalue the company and to disguise payments of funds entitled to [them] that were made to Geisen’s own companies.”
The two say Geisen formed shell companies and transferred money and assets from Foreclosure Freesearch into those companies, including one called Live Data Group.
Barry Postman, an attorney with Kole Scott & Kissane, who is representing Muttillo and Sullivan in the litigation, said those transfers “impermissibly devalued” the company.
The suit also claims Geisen took $1.2 million in distributions and about $3 million in loans, and used more than $336,000 in company funds to pay for personal expenses such as gambling, adult entertainment, and hotel, restaurant and nightclub bills.
“We intend to show that our clients are entitled to millions of dollars as a result of these improper actions,” Postman said.
Geisen declined to comment because of the pending litigation, his attorney said.
The partners claim they were “thrown out” of the company in 2004 and since then have been trying to recover their share of the business, which they value at about $11 million each.
“He improperly and fraudulently forced them out from the company despite the fact they were co-founders and shareholders of the company, and he failed to pay them distributions while everybody else was getting paid,” Postman said.
Geisen’s attorney, Robert Critton, said the two are entitled to only about $600,000 each and calls their accusations of fraud against Geisen “ridiculous” and “absurd.”
“This is all a diversion,” Critton said. “This is about disgruntled minority shareholders who tried to take control from the majority shareholder. “ Why, he asked, would Geisen “devalue the company of which he now owns 100 percent of shares? If any money was used for personal expenses, they were either repaid or taken from his compensation.”
A trial has been scheduled for March.
COMPANY’S LAUNCH
Geisen, Sullivan and Muttillo had known each other and worked together in various real estate ventures since the 1970s, Sullivan said.
In 1999, Geisen founded Foreclosure Freesearch Inc., which became the parent company of two foreclosure data Web sites — Foreclosure.com and Foreclosurefreesearch.com. Muttillo and Sullivan, co-founders of the venture, were officers and directors at Foreclosure Freesearch.
In court documents, they said they were instrumental in launching and growing the company. They said they tripled the company’s income from 2002 to 2004 — when Geisen lived in Georgia with his family — bringing in sales of about $9.5 million a year.
In late 2004, after a dispute between the three partners, Geisen changed the locks on the doors of the Boca Raton office and fired them, according to the lawsuit.
In 2005, Geisen filed a lawsuit for declaratory relief against the two partners, claiming they were not shareholders of the company. Sullivan and Muttillo countersued. After a three-year battle, the dispute was apparently settled in May 2008, when Geisen agreed that Muttillo and Sullivan deserved an 18.69 percent share in the company. That represented about 200,000 shares each.
Geisen remained the majority owner.
On the same day the agreement was signed, Geisen declared a reverse stock split — reducing the overall number of shares and increasing the share price proportionately.
Postman said in the lawsuit the reverse split was illegal and an attempt to dilute Muttillo and Sullivan’s interest in the company.
“He did a reverse stock split to further keep us out of the company,” Sullivan said.
Critton, of Burman Cirtton Luttier & Coleman in West Palm Beach, said the reverse stock split was done legally and with the intention of ending the litigation. Critton said the split allowed Geisen to buy out the minority shareholders and become sole owner.
He said Muttillo and Sullivan were each offered about $600,000 for their shares, which was based on the valuation of the company a day before the reverse stock split transaction took place. “They had two options,” Critton said. “They could have accepted the offers or filed an appraisal action. They haven’t done it.”
Postman said he will not file to claim appraisal rights until the court determines whether the stock split was proper.
“If they believe an appraisal right should be filed, they have the right to file one themselves,” Postman said.
In May 2008, Palm Beach Circuit Judge Jeffrey Winikoff granted Sullivan and Muttillo a temporary injunction, blocking the stock split until their claims of misappropriation of funds, wrongful distribution of funds and breach of fiduciary duty against Geisen and the company were resolved.
In June, the 4th District Court of Appeal overturned the injunction, ruling the transaction and appraisal process did not prevent the partners from pursuing their pending claims.
FIGHT OVER CONTROL
Muttillo wouldn’t comment on the dispute, other than to say he wants “justice.”
Sullivan declined to discuss the reason for the argument that led to the end of the partnership, but Critton said the fight was about control. “They thought they were the ones who had made this corporation successful,” he said. “They thought Brad needed to step aside. Brad basically said, ‘No, I’m the majority shareholder, and I don’t want to work with you anymore.’ He was the visionary. He put hundreds of thousands of dollars into this company. They didn’t put any money in the company.”
Postman said the two partners didn’t put money into the company but invested “their time, effort, innovation and deferred compensation.”
This isn’t the only legal fight the three partners have had. Geisen sued the two partners in 2007, claiming they kicked him out of another venture called REO in which each was a one-third partner. Critton said Muttillo and Sullivan were using company money to pay the legal costs in their lawsuit against Geisen.
The case settled shortly after it was filed, and Critton said the partners paid Geisen a “substantial amount of money.”
Sullivan declined comment about the REO litigation but said of the current pending suit: “We’ve been litigating this for five years while Geisen has been using the company as his personal piggy bank.”
Polyana da Costa can be reached at (561) 820-2065.
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