CHICAGO (CN) – Two shareholders claim in a lawsuit filed Thursday that the head of Restaurant.com purposely drove the company to near bankruptcy so he could profit more from his own stock in the dining-deals business.
Steven Schnall and Adnan Adamji, also the former CIO, claim in their Cook County lawsuit that Restaurant.com CEO, Chairman of the Board and President Kenneth Chessick “has taken actions to wrongfully and improperly line his own pockets with monies belonging to the company and its shareholders.”
Chessick took over as CEO of the self-proclaimed largest dining deals website in the country in December 2011, but was involved in the business since its inception in 1999, according to the complaint.
Schnall and Adamji – represented by attorney Robert Shelist in Chicago – say that the company, which sells discounted gift certificates to restaurants, generated $15 million in profits from 2010 to 2011.
The first year Chessick was in charge Restaurant.com lost over $8 million, and continued to spend more than it earned every year. All the while, Chessick has paid himself over $1 million annually.
According to the lawsuit, Restaurant.com lost over $8 million the first year Chessick was in charge to spend more than it earned every year.
All the while, Chessick has allegedly paid himself over $1 million annually.
Now, Schnall and Adamji’s claim, “The company is in poor financial health at present and may be on the brink of bankruptcy.”
“In 2012 and beyond, Kenneth Chessick has continued to institute drastic changes to the Restaurant.com business model resulting in dramatic losses in revenue and profit,” the complaint states.
According to the shareholders, Chessick fired the company’s sales force and moved to a call-center model, cut email marketing campaigns and started selling $10 gift certificates instead of $25 ones. By May 2013, almost 6,000 restaurants had dropped out of the program, they say.
“This was a designed plan by Kenneth Chessick to seize control of the company and further dilute the value of other shareholders stock,” the lawsuit alleges.
Also an active attorney with his own law firm, Chessick allegedly created a purchase agreement for himself to buy Series C stock in the company for an exorbitant interest rate and a depressed value of the company, and restricted information about the sale.
He planned to turn the business around before selling it, according to the complaint, but earlier this year Chessick offered the entire company up for sale at $10 million in enterprise value.
“At this price, Kenneth Chessick would receive almost all, if not all of the proceeds of the sale, paying all other shareholders nothing or virtually nothing,” the complaint states.
Schnall and Adamji accuse Chessick and the Illinois-based Restaurant.com Inc. of breach of fiduciary duty. They seek punitive damages.
The company did not return a request for comment Thursday.