Investors Are Hot at Fire Extinguisher Firm

DALLAS (CN) - Fire extinguisher maker FireStryker defrauded investors of $22 million by lying about having millions of back orders, 10 investors claim in court.

The investors say in the complaint: "The defendants' supposed due diligence trips appear to have been little more than extravagant international trips filled with first-class travel and expensive hotels, restaurants and other festivities."

Lead plaintiff Italian Investors LLC sued Michael McGehee, Henry Romaine Jr., Allan McBee and Michael McBee Jr., all of Dallas, private investment firm WillMac Companies LLC, McBee Operating Company LLC and FS Ireland Management LLC, in Dallas County Court.

Italian Investors claims it invested and lost $8 million.

Among the other plaintiffs, In-Line Investments LCC claims it lost $1.8 million; Kenneth L. Schnitzer Jr. 1989 Gift Trust, $1 million; Theodore Skokos, $1.36 million; and Michael and Patrick Thompson, $2.38 million.

Defendants McGehee, Romaine and WillMac affiliate WillMac Americas LLC formed FireStryker in 2011 to buy E.S.P., Srl, an Italian maker of portable fire extinguishers, according to the complaint.

The plaintiffs say the defendants raised money for this by soliciting them to buy shares in FS Ireland investment vehicles, which would then buy Series A preferred shares issued by FireStryker.

"Defendants represented that E.S.P. was a successful and growing company with a backlog of orders," the complaint states.

"Among other things, defendants represented in WillMac presentation materials that E.S.P.:

"had 'explosive growth potential' and that '[e]xisting customers have verbally indicated demand over 24 months that would provide investors with full return of capital and very high overall returns':

"had a 'current order backlog from existing customers' of over two million units, which they said 'implies ~ $20 million of very high probability gross profit through 2012';

"had 'confirmed active orders in process' of 975,000 units and 'order volumes promised by existing customers' of 2,800,000 units; and

"had projected total revenue of $10,118,000 for 2011 and $38,094,000 for

2012.

"Defendants even characterized these figures to be conservative."

And that's not all, the investors say: "Defendants made additional representations to some plaintiffs in order to close the deal," the complaint states. "(T)he WillMac defendants told plaintiffs that a UL certification for the FireStryker fire extinguisher would be obtained in the very near future. This would lead to sales in the United States."

The plaintiffs claim the McBees represented that FireStryker has $4.4 million cash on hand in January 2012, that a sub-Saharan distributor had placed a 400,000 unit order, that an Italian tractor manufacturer had ordered 130,000, that an Indian distributor was finalizing a 500,000 unit order and that the company's Italian plaint was bringing a second production line online and that both lines were running on double shifts.

But after FireStryker became a subsidiary of Acell Investors and a new CEO was hired, the fraud was uncovered, the plaintiffs say in the complaint.

They claim that FireStryker had less than $4.4 million of year-end cash on hand, that there was no backlog of millions of orders, that the Italian government did not intend to require a FireStryker unit in every vehicle, and that certification and safety issues where either misrepresented or not disclosed at all to prospective investors. "The fact is that defendants conducted very little due diligence ... defendants have no documents evidencing supposed 'current order backlog' of 2 million units or 'confirmed active orders in progress' of 975,000 units, much less documents evidencing any investigation or analysis of such important facts," the complaint states. "The defendants' supposed due diligence trips appear to have been little more than extravagant international trips filled with first-class travel and expensive hotels, restaurants and other festivities."

The defendants also failed to disclose McGehee's Chapter 7 bankruptcy filing in 2004, which left millions of dollars in debts unsatisfied, according to the complaint.

"It appears that McGehee sought bankruptcy court protection in Mississippi in an attempt to hide his prior financial difficulties from unsuspecting investors in Dallas like plaintiffs," the complaint states. "McGehee's portrayal of himself as a successful businessman to plaintiffs and the Dallas community appears to be nothing more than a charade to dupe investors like plaintiffs."

The plaintiffs seek actual and punitive damages for fraud, fraudulent inducement, negligent misrepresentation and violation of the Texas Securities Act.

They are represented by John Eichman with Hunton Williams in Dallas.

Follow @davejourno

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