Cosmetics Company Claims CEO Rolled It

MANHATTAN (CN) - Cosmetics company Fusion Brands America claims its former CEO cost it millions of dollars through mismanagement, used corporate money to pay her personal expenses and redirected business to her own companies.

Fusion claims Caroline Pieper-Vogt, who quit 3 weeks ago, violated the contract in which she agreed to protect Fusion's confidential information and refrain from soliciting its clients and employees while she worked for the company.

"While she served as Fusion's CEO, and was receiving substantial compensation from Fusion, Pieper-Vogt engaged in a series of unlawful acts designed to promote her own personal interests at the expense and to the detriment of Fusion," according to the complaint in New York County Court.

"In particular, Pieper-Vogt misused corporate funds, misappropriated corporate opportunities for her own personal benefit, operated her own private commercial businesses while serving as Fusion's CEO, and misappropriated Fusion's confidential business information and trade secrets. At the same time, she grossly mismanaged the company, repeatedly placing her own personal interests above the interests of Fusion and its shareholders."

Pieper-Vogt was Fusion's CEO from June 2009 until she resigned on Oct. 28. The company says she was paid an annual salary of $425,000, a $20,000 annual clothing allowance, with paid vacation and other benefits.

Fusion sells luxury cosmetics and fragrances through high-end retailers such as Sephora, has its own line of beauty products and acts as a sales agent for other cosmetics manufacturers.

In May 2009, Fusion's owner Eugene Melnyk hired Pieper-Vogt to expand Fusion's market share and "to repair the stagnancy created by the previous CEO," according to the complaint.

But Fusion says Pieper-Vogt failed to deliver and used Fusion's business opportunities to her own advantage.

Among other things, the company claims, Pieper-Vogt signed a joint venture agreement in January with Paris-based cosmetics company ID Beauty International Distribution on behalf of Fusion, but secretly retained an equity stake in Fusion's share of the joint venture. The contract established an entity that would distribute ID Beauty products in the United States.

"At no time did Pieper-Vogt bring the joint venture opportunity to the attention of Fusion's board of directors, let alone obtain its consent for her to pursue this opportunity personally," the complaint states. "Rather, Pieper-Vogt kept this opportunity highly secret. When Mr. Melnyk later asked for a copy of Fusion's contract with ID Beauty, Pieper-Vogt provided him with a copy of the sales agreement, but omitted the critical joint venture agreement. In so doing, Pieper-Vogt attempted to conceal her impropriety by engaging in a conscious cover-up."

Fusion claims Pieper-Vogt grossly mismanaged the company and misused corporate money, for personal expenses.

"In late 2010, Pieper-Vogt provided Fusion's board and Mr. Melnyk with financial projections that showed Fusion generating more than $60 million in gross revenue for 2011," the complaint states. "Under Pieper-Vogt's leadership, Fusion never came close to meeting these projections. In sharp contrast to the projections, Fusion's actual revenue through August 2011 was only $17.1 million, and the revenue projections for the entire year were revised downward by nearly 60 percent to approximately $24.2 million, even less than the company had generated the prior year."

Fusion says Pieper-Vogt cost it millions by developing and marketing products that had not been approved by the Food and Drug Administration, lacked appropriate trademark rights, or simply failed to launch.

It adds: "Throughout the period of her employment, Pieper-Vogt repeatedly misused corporate funds to promote her own self-interest, at the expense of Fusion. In particular, Pieper-Vogt awarded sweetheart contracts to personal friends and associates, bought and sold company assets on non-competitive terms to advance her own professional relationships, and required Fusion to finance her self-promotional ventures."

Fusion says Pieper-Vogt entered into "one-way deals" and spent extravagant amounts to preserve personal relationships with retailers, designers and clients, all to Fusion's detriment.

The complaint states: "In early 2011, Pieper-Vogt proposed that Fusion spend approximately $500,000 to sponsor the Daytime Emmy Awards. Fusion's sponsorship would allow Pieper-Vogt to attend the Emmy Awards in person and appear on the red carpet, which would further increase her visibility in the industry and which was Pieper-Vogt's primary motivation for seeking to sponsor the event. At that time, Fusion was starved for cash as a result of Pieper-Vogt's mismanagement, and Fusion's executive committee, which was established to set strategy for the company, refused to authorize the expenditure. Mr. Melnyk, Fusion's chairman and owner, denied Pieper-Vogt's request, and specifically instructed Pieper-Vogt not to go forward with the event in view of the company's more pressing financial needs.

"Nevertheless, Pieper-Vogt persevered in her efforts for self-promotion. She falsely represented to Mr. Melnyk that the event had already been paid for, when in truth Fusion had not made payment. Pieper-Vogt planned to use money earmarked to pay Fusion's suppliers to finance her pet sponsorship. In utter indifference to the company's best interests, and contrary to instructions from the company's chairman, Pieper-Vogt went ahead with the Emmy's sponsorship, and caused Fusion to incur in excess of $500,000 in fees as a result. Pieper-Vogt arranged for Fusion's finance department to pay the Emmy's fee in a manner that circumvented Fusion's internal spending limits by instructing finance personnel to write multiple checks and thereby concealed her unauthorized activity from Mr. Melnyk."

Fusion claims Pieper-Vogt excluded other executives from key client meetings and conference calls and promoted her own companies - some of which competed with Fusion.

And, before she resigned, Pieper-Vogt took confidential materials, including financial statements and estimates, customer and supplier lists and product development plans, the company says. When Fusion asked her to return them, Pieper-Vogt provided some of the original documents, but kept copies, according to the complaint.

Fusion claims Pieper-Vogt removed the documents to hide her mismanagement of the company and to use them in her future endeavors.

Fusion adds: "Following her resignation, Pieper-Vogt also has embarked on a campaign to intentionally disrupt Fusion's business, and interfere with its relationship with its customers and other business partners. Among other acts, Pieper-Vogt has improperly disclosed Fusion's confidential financial information and made false statements to key participants in the market that Fusion supposedly is insolvent and unable to meet its contractual obligations. At the time she made these statements, Pieper-Vogt knew that the statements were false, and that discussion of financial information relating to Fusion violated her most basic fiduciary and contractual obligations to the company."

To top it off, Fusion says, Pieper-Vogt falsely claims she is entitled to severance pay equal to 1 year's salary, and that the non-solicitation provisions don't apply to her, because her resignation was "involuntary."

Fusion seeks $10 million in compensatory and punitive damages for breach of contract, breach of fiduciary duty, gross negligence and misappropriation of corporate opportunity. And it wants Pieper-Vogt enjoined from soliciting Fusion employees and customers, disclosing Fusion's confidential information and disparaging the company.

Fusion is represented by Harry Frischer with Proskauer Rose.

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