Rauch Sues Radko for Fraud
By Meredith Schwartz -- Gifts & Decorative Accessories, 6/4/2007 2:04:00 PM
Charlotte, NC — Christopher Radko has been given until June 20 to answer allegations in a lawsuit filed by holiday decor vendor Rauch Industries Inc. The suit, filed last month in the United States District Court, Western District of North Carolina, Charlotte Division, is seeking some $60 million in compensation (originally thought to be as high as $20 billion) for alleged breach of contract and fiduciary duty, among other things — allegations that Radko is expected to deny.
Rauch bought Radko’s company, Starad Inc., in March 2005 and hired Radko to run his former business as the Christopher Radko Division of Rauch. In addition to serving as division president, Radko bought a 5 percent interest in Rauch and became a member of its board of directors.
The complaint alleges that Radko secretly owned his division’s primary supplier, Polish company Northstar Sp. z.o.o., as well as affiliated companies. As a result, Rauch contends it was overcharged for the 80 percent of the Christopher Radko Division’s glass Christmas ornaments that Northstar produces, to the tune of more than $5 million.
The complaint further charges that Radko scuttled a potential acquisition of the division from Rauch in February 2006, putting Rauch at risk of bankruptcy and costing the company $15 million. At the time, there were rumors of difficulties at Radko, but Radko told Gifts & Decorative Accessories that his business was “doing just fine,” adding that he’d been in business for 21 years. “My brand is very strong,” he said.
Nevertheless, Rauch court papers confirm that the division was then losing money. The alleged lost purchase price and overpayment, plus losses the company claims due to Radko’s actions, punitive damages and costs, contribute to the total.
Other allegations in the suit include fraud, misrepresentation, constructive fraud, unfair trade practices, unjust enrichment and imposition of a constructive trust.
Radko’s attorneys, Epstein & Weil, New York, told Gifts & Dec that Radko “denies the allegations in the complaint and can only conclude that Rauch has been seriously misinformed.” Radko will respond by the court’s deadline, and intends to seek damages against Rauch for “numerous violations of its agreements with him.”
On May 24, the Court extended the deadline for Radko to respond until June 20.
Bob Walters, CEO of Rauch Industries, told Gifts & Dec, “It is an ongoing lawsuit so I really cannot make any comments.”
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