NEW YORK — Elie Tahari dropped a bomb Wednesday on his former business partner in Theory, Andrew Rosen.
Filing a lawsuit in New York State Supreme Court, Tahari is seeking no less than $180 million in damages from Rosen and 10 other defendants, alleging “commercial treachery and fraudulent self-dealing.”
In the suit, Tahari charges Rosen defrauded him into selling Theory, the contemporary resource, in 2003 at a price that didn’t reflect the company’s true value. Further, it alleges the new Japanese owners resold Theory in an initial public offering on the Tokyo Stock Exchange in 2005 at a market capitalization of more than $500 million — nearly five times the sale price of Theory LLC less than two years before.
“These IPO proceeds were obtained by unlawful self-dealing and fraud and rightfully belong to Tahari,” the court papers said.
The suit charges that Rosen, “along with his co-conspirators” stole in excess of $220 million from Tahari. The more than $180 million in damages that Tahari is seeking are derived from the difference between the sale price received by Tahari on the sale of Theory in 2003, and one-half of the amount of the IPO proceeds, according to court papers.
Reached for comment, Rosen, president of Theory, told WWD: “I had heard that Mr. Tahari was circulating slanderous remarks about me and our company, and I have instructed my attorneys to take appropriate action against him. Mr. Tahari’s claims are completely baseless and without any merit whatsoever. One has to consider the source when determining whether to give credence to what he has to say.”
A spokesman for Tahari said, “We don’t comment on pending legal matters.”
Tahari and Rosen started Theory together as 50/50 business partners in 1997. According to the suit, “Soon thereafter, Rosen repaid Tahari by implementing a secret plan to wrest control of Theory from Tahari at a fraction of its true value for the benefit of himself and his co-conspirators.”
Besides Rosen, the other defendants include Ricky C. Sasaki, Link International, Link Theory Holdings Co., Fast Retailing Co. and L&F Holdings Inc.
According to the lawsuit, Rosen told Tahari that he planned to retire from Theory and the fashion business, and that Theory would have to be sold. The suit charges Rosen refused to conduct an appraisal of Theory, or hire an outside investment adviser. Rather, the court papers allege, Rosen had a “secret agreement” with Sasaki and Link Holdings about selling them the business.
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During Tahari and Rosen’s partnership, Link International in Japan held the license to manufacture and distribute Theory products in Japan, Hong Kong and other parts of Asia. The suit charges the business grew from $7.5 million in 2000 to more than $64 million in 2002, but that the defendants “failed to make all their royalty payments to Theory on account of these sales, and were allowed to do so.”
The suit alleges the defendants failed to maintain accurate records, and have refused to disclose their financial dealings. Additionally, the suit said Tahari told Rosen that Theory should not renew its licensing agreements with Link or Sasaki, but Rosen urged Tahari not to terminate the agreements.
According to the complaint, Rosen urged Tahari to sell Theory to Sasaki and/or Link, but Tahari said he had no interest in selling the firm to anyone. But then, the suit charges, Rosen “falsely told Tahari” that he no longer could work for Theory or the fashion industry, and that he intended to retire within six months to one year, and the two partners needed to find a buyer for the company.
The suit alleges Rosen, on behalf of himself and several of the defendants, “intentionally made material false statements of fact to Tahari and concealed material facts from Tahari in order to induce Tahari to sell his interest in Theory LLC.”
Further, the complaint noted, between 1999 and 2002, Rosen had demanded that Tahari pay him a higher salary and a larger percentage of the profits of Theory LLC and decrease the money Theory was paying to Tahari Ltd., for support services Tahari was providing.
“On information and belief, defendant Rosen engaged in self-dealing by entering into a scheme with defendants Sasaki and Link to steal the Theory brand from Tahari through a forced sale, to receive additional value from the sale of his own interest in Theory LLC and to build a global Theory brand without Tahari,” the lawsuit said.
Faced with no alternative buyer and the fact that Rosen refused to continue his employment with Theory, the suit alleges Tahari agreed to sell his interest in Theory to an acquiring entity created by Link International, Fast Retailing and L&F Holdings. Tahari received approximately $53 million, according to the suit. Rosen sold his one-half interest for about $49 million, together with 11 percent of L&F Holdings, which held the U.S. operations of Theory.
Rosen agreed to serve as president and chief operating officer of Link Theory U.S. for a minimum of one year, with the possibility of an extension up to three years, according to the court papers. At around the time of the sale of Theory, the suit charges Rosen falsely told Tahari he would not, under any circumstances, work for more than the minimum required one year.
Subsequently, L&F Holdings was reorganized into Link Theory U.S., with 89 percent owned by Link Theory Holdings and the remaining 11 percent by Rosen, according to the papers.
The suit alleges Rosen holds “additional valuable shares or other interests in Link Theory Holdings and/or Link Theory U.S.; pursuant to a secret agreement between Rosen and Sasaki and possibly others, although, given the secret nature of the fraudulent conspiracy set forth above, Tahari is unable to describe this arrangement with any specificity.”
According to the suit, both Tahari and Rosen were to receive “50 percent of any accrued and unpaid royalties under the Link License Agreements up to the date of the sale to L&F Holdings.”
Based on the court papers, “Link and the other acquiring parties continued to breach their obligations under both the Link license agreements and the purchase agreement by failing to maintain proper books and records relating to royalty payments, refusing to provide Tahari access to such books and records, failing to cooperate in verifying the accuracy of past royalty payments and failing to make correct payments.”
The suit states that Sasaki, Link and Link Theory U.S. “colluded with each other intentionally, purposefully and without excuse or justification to deprive Tahari of his ownership stake in Theory.”