MINEOLA, N.Y. (CN) - Operators of a chain of New York Metro-area pawn shops cooked the books so they could use its profits as a "piggy bank," and bilked at least one shareholder out of $60 million, the man claims in Nassau County Court.
Jeffrey Davis accuses Mitchell H. Kaminsky and several members of the Kaminsky family, owners of Gem Financial Services, Gem Pawnbrokers Long Island and other businesses, of "lining their pockets with corporate funds at the expense of plaintiff and the three defendant New York corporations in which he is a shareholder."
Davis says that when he raised questions about his business partner's activities, he was told, "It's [Kaminsky's] candy store and he do anything he wants."
Davis claims the defendants breached their fiduciary duties through gross mismanagement of corporate funds, corporate waste, self-dealing, misappropriation of corporate assets and violations of state and New York City laws.
Davis adds that Kaminsky, the majority owner of the firms, routinely spent corporate money to support a lavish lifestyle replete with high-end vehicles and other luxuries and to establish auxiliary businesses in his own name.
The result, Davis says, was the dilution of his shares in the firm, loss of a significant portion of a loan he made to the company, loss of dividends and embezzlement of the company's funds.
Davis says he met Kaminsky in 1986. At the time Davis owned a retail gift ship in Queens. He says Kaminsky persuaded him to convert the business to a pawn shop, Gem of Queens. When the deal was consummated, Davis owned 51 percent of the new business, while Kaminsky, Kaminsky's father and another partner split the remaining 49 percent.
Several years later, Davis says, Kaminsky and his father bought him out and as part of the deal gave him minority interests in several other pawn businesses the family owned.
Davis claims that after quite some time, he discovered that once a month Kaminsky and other company officers commingled forfeited property from their stores and sorted it into two groups: goods to be sent back to the stores for resale, and good to be sold for scrap or to independent third parties to sell in their own stores.
Davis says a review of the books showed that checks cut by the scrap firm were not consistent with company inventory lists and bore no relation to the value of the property.
He claims that for bookkeeping purposes Kaminsky valued the goods sold for scrap at about 50 percent of their wholesale value, though he actually sold them for their market value and pocketed the difference.
In addition, he says, Gem property that was deemed appropriate for resale was often sent to one of Kaminsky's ancillary businesses, robbing the firm Davis had invested in of the products' value.
Finally, Davis said, Kaminsky and his family routinely "loaned" the company money, then charged it an exorbitant 20 percent interest rate.
Davis seeks return of his $60 million, injunctive relief, an accounting and punitive damages for breach of fiduciary duty, waste of corporate assets, unjust enrichment, fraud, negligent misrepresentation, promissory estoppel, conversion, breach of constructive trust, and negligence.
Defendants include Mitchell H. Kaminsky, Mitchell H. Kaminsky Revocable Trust, Eileen Kaminsky, Paula Kaminsky Davis, Hollywood Boulevard Pawnbrokers, Harold Dambrot, Florida Refiners and Consultants, Gem Financial Services, Gem Pawnbrokers Long Island Corporation, Gem of Merrick, and HSBC Bank USA.
Davis is represented by Steven Schlesinger with Jaspan Schlesinger of Garden City, N.Y.
(EDITOR'S NOTE: Counsel for defendants in this case informed Courthouse News on Aug. 23 that the court denied the plaintiff's request for an injunction, and that defendants Kaminsky and Gem Pawnbrokers have filed counterclaims against Davis, including a claim of fraud. Click on the highlighted words in this note to see the court order and the counterclaim.)
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