VENTURA, Calif. (CN) - San Francisco Giants pitcher Barry Zito claims in court that a friend duped him into investing $3 million in a fitness software scheme that never materialized.
Barry Zito Enterprises Inc. filed two Superior Court complaints against dotFIT LLC, Global Health Solutions LLC, NEFC FitInnovations LLC, Lafayette Holding Company LLC and New Evolution Ventures LLC.
Zito also sued his friend Michael Clark, and Neal Spruce and Odd Haugen.
One complaint alleges fraud, breach of contract and other charges; the other is a derivative complaint. The citations in this tangled tale are from the 33-page derivative complaint.
Zito claims Clark used their longtime friendship to entice Barry Zito Enterprises (BZE) into investing $3 million in dotFIT.
He claims Clark told him that dotFIT "was in the midst of a $20 million equity campaign that would allow dotFIT to exploit a valuable software interface (which dotFIT owned) and market it to health clubs worldwide."
"Clark further explained that he had others ready to invest and that if BZE did not act fast, it would lose its investment opportunity. But dotFIT now claims that it never sought to raise $20 million in equity (and never had $20 million in capital)," Zito says in the complaint. (Parentheses in original.)
According to Zito, defendants Global Health and Lafayette formed dotFIT to create a software interface to market holistic health, nutrition and personalized fitness over the Internet and to health clubs. The software interface, called Fitness Intelligence Technology, operated "channels" online and in the health clubs and also marketed nutritional supplements.
Zito claims Lafayette purposely undercapitalized dotFIT from the start, luring Global Health and defendants Spruce and Haugen with unreasonably high salaries, bonuses, shares of dotFIT's profits and, in the case of Global Health, a membership interest in dotFIT.
Zito claims that when Lafayette and Global Health formed dotFIT, Global Health contributed the software interface for a 60 percent stake in the company, while Lafayette contributed $4 million in short-term loans-not capital-for the other 40 percent. Lafayette then transferred its stake to defendant NEFC, a company it manages and controls.
For "legal capitalization reasons," Zito claims Lafayette agreed to convert the first $1 million of its short-term loan to dotFIT into equity and through another of its companies-defendant New Evolution Ventures (NeV)-made the equitable contributions in two $500,000 payments. However, Lafayette continued to treat the new equity investment as the short-term loan it had been, with the same terms but changing the due date, according to the complaint.
To keep dotFIT afloat, Lafayette's owner Mark Mastrov made five insider loans to dotFIT-in his own name or as Lafayette or New Evolution Ventures-totaling $3 million, according to the complaint. Then Michael Clark, a principal at Global Health and longtime friend of Zito, approached the pitcher to invest in dotFIT.
Mastrov is not a party to Zito's complaints.