Weintraub Entertainment Group investors have filed a $75 million class-action suit against WEG officers Jerry Weintraub and Kenneth Kleinberg and other company affiliates, alleging securities violations, breach of fiduciary duties, fraud and other causes related to the company’s 1987 initial offering of $461 million.
The investors filing the claim are the Alpha Group Consultants Ltd. and Allan D. Simon & Stefani R. Simon Living Trust, on behalf of themselves and all others.
Plaintiffs claim they lost their $75 million investment in the now-bankrupt WEG as a result of buying the company’s securities through Bear, Stearns & Co. The Wall Street investment banking firm also was named in the suit, filed April 25 in San Diego Federal Court.
Dennis Pope, a WEG director, executive v.p. and chief financial officer since October 1986, also is named as a defendant.
The investors claim they would not have invested in WEG if they had been privy to critical information about the company’s true financial status and investment intentions.
According to the complaint, WEG securities sold to investors included 13% subordinated debentures and warrants to buy WEG common stock at $7.50 a share.
Among the laundry list of allegations, the investors claim that WEG officers did not pay for their WEG shares, that the company’s $145 million credit facility from Bank of America was not finalized and that presale advances for film production were “grossly overstated.”
The investors contend that between January 1987 and September 1990, WEG and Bear, Stearns filed documents with the Securities & Exchange Commission, including a written private placement memorandum booklet that “materially misstated WEG’s financial condition, prospective business advantages, adverse employment history of WEG’s chief executive [Weintraub] and the business purposes for which WEG intended to use the proceeds” from its public offering.
The suit alleges that Bear, Stearns “assisted in devising the fraudulent financing scheme” and “omitted material facts” in the sale of securities to investors.
Over the three-year period (1987 to 1990), the investors claim they were promised an investment return of $33.75 million but received only $28.12 million.
From 1990 to 1999, the promised $159.37 million investment return scored zero results, the suit states.
According to the filing, WEG made no principal payments on its $184 million debt and quit making interest payments as of Jan. 31,1990 – nine years before the payment due date in 1999. Principal payments had been scheduled to start in 1995, with interest payments beginning in July 1987.
Last September, however, the financially strapped WEG sought protection from its creditors under Chapter 11 of the U.S. bankruptcy code. Shortly thereafter, Weintraub resigned as chairman and chief exec.