Travelmax International Inc. v. Alverson, et al.
Published: May 3, 2001 | Result Date: Nov. 29, 2000 | Filing Date: Jan. 1, 1900 |Case number: 783061 – $0
Judge
Court
Orange Superior
Attorneys
Plaintiff
Defendant
Stephen J. Tully
(Garrett & Tully)
Experts
Defendant
Michael G. Ueltzen
(technical)
Facts
The plaintiff corporations, following a reverse merger in late 1995, created a multi-level marketing enterprise
selling travel agent training material and providing booking services for independent travel agents who
completed the program.
By the end of 1996, the companyÆs sales were $27 million and its price per share had increased from 3 cents to
$1.75. The rapid growth caused numerous significant administrative and accounting problems.
In 1996, defendant CPA Gerald Kelly and his accounting firm, defendant Kelly & Company, were retained as
auditors for the plaintiffs. Shortly after their engagement, Kelly wrote a lengthy memorandum to the plaintiffsÆ
controlling directors and management detailing the problems, including the use of corporate funds for personal
expenses, of the three controlling directors and officers.
The plaintiffs and their management were not able to remedy the problems and in early 1997, the problems
worsened to the point where the company shut its doors and laid off all of its employees.
Defendant Kelly & Company resigned before completing the audit or issuing any report. Two Florida investors
then purchased the plaintiff companies for $10 and caused the corporations to issue them 26 million shares
without the shareholdersÆ approval, ultimately taking control of the company and diluting the existing
shareholdersÆ shares by 70 percent.
Once in complete control as majority shareholders, directors and officers, the Florida investors allegedly used
the plaintiff corporation as a means of funneling money among a multi-faceted web of inter-connected
companies that they owned. Additionally, the Florida investors made sure that virtually all of the plaintiffsÆ
businesses became subsumed by their other corporate vehicles through sales, rents and common employees and
directors.
The Florida then caused the plaintiffs to file suit against the plaintiffsÆ former officers, directors, accountants
and lawyers, among others.
Settlement Discussions
The Kelly defendants made a statutory offer of $175,000, withdrawn prior to expiration. The plaintiffs demanded $1.3 million from the Kelly defendants at mediation.
Other Information
The plaintiffs have filed a notice of appeal.
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