XanGo co-founder accuses partners of corporate looting in lawsuit
Scott G. Winterton, Dnews
SALT LAKE CITY — A co-founder of one of Utah's most recognizable and successful brands paints a picture of a company rife with corporate looting, internal cover-ups and spying in a federal lawsuit.
XanGo co-founder and board member Bryan B. Davis accuses his five founding partners of asset mismanagement, intimidation and illegal activities from fraud to bribery in the 38-page complaint filed last week in U.S District Court.
Specifically, he claims CEO and board chairman Aaron Garrity embezzled hundreds of thousands of dollars in company assets for personal expenses and lavish gifts for family and friends.
"While the founders of XanGo owed each other and XanGo the highest fiduciary duties, almost from the inception of the company Aaron Garrity saw XanGo as an opportunity to enrich and promote his personal interests," according to the lawsuit.
Davis also contends Garrity used a XanGo security officer's access to law enforcement databases to gather non-public information on investors, leaders and founders of competitors and XanGo distributors and employees.
Bryon Benevento, an attorney for Garrity and the other four partners, said Davis' allegations are unfounded and that they are confident in refuting them. The XanGo board, he said, offered Davis a separation agreement a few months ago due to his ongoing failure to do his job.
"Bryan Davis has taken legal action against his partners in an attempt to extract an inflated buyout from them for his shares in the company," Benevento said in an email Sunday. "Mr. Davis has failed to show up for work yet still expects a regular paycheck."
Benevento deemed the lawsuit without merit and "nothing more than an attempt to embarrass his partners and force a higher settlement."
Lehi-based XanGo is an 11-year-old privately owned multilevel marketing company built around its mangosteen juices. It has more than 2 million distributors worldwide and reportedly has topped $2 billion in revenue.
The company is a major sponsor of the professional soccer team Real Salt Lake and has its name emblazoned on the front of the team's jersey.
Some of Davis' most serious allegations claim XanGo:
• Deprived owners and investors of compensation through fraud, racketeering and money laundering.
• Bribed Russian customs officials and used organized crime to avoid paying taxes on products shipped to Russia.
• Filed false tax returns.
In addition to Garrity, the lawsuit names co-founders Gary Hollister, Gordon Morton, Joseph Morton and Kent Wood and chief financial officer Nate Brown as defendants.
Davis seeks at least $3 million for what he claims is breach of contract and wants a judge to strip corporate executives of their managerial roles.
Garrity implemented a “culture of giving” at XanGo, which Davis says meant those partners and employees in Garrity's good graces had unlimited use of XanGo assets for their own personal benefit.
Davis claims the founders spent millions of dollars in company money for all kinds of luxury items including exotic vacations, country club memberships, Fender Stratocaster guitars, designer sunglasses and construction of a suit room for Garrity.
Garrity wrote off as "business expenses," suits, medical enhancements and treatments, jewelry, event tickets, watches, bicycles, electronics, media, gambling, chartered planes, personal vacations and gifts, according to the lawsuit.
"When the fraudulent and spoliated expense reports were submitted to XanGo’s accounting department, Mr. Garrity used his power and influence as a founder to threaten XanGo employees into turning a blind eye to his theft," according to the lawsuit.
The six founders own 86 percent of XanGo and control the board of directors. Individual investors own the remainder.
Among them is Angel Investors LLC, a group of four people who in 2002 paid $95,000 for a 1 percent interest in the company.
Angel sued Xango in 2007, alleging the founders took millions of dollars in personal loans from the company and paid themselves excessive salaries while wasting corporate assets.
Davis, who alleges some of the same things in his lawsuit, was named as a defendant in that case. A 4th District judge initially dismissed the suit, ruling Angel was unqualified to represent all XanGo investors and denying its request to examine the company's books.
The Utah Supreme Court later reversed that decision, allowing the lawsuit to proceed. Angel and XanGo reached a confidential settlement in July 2010.
The same attorney who represented Angel Investors now represents Davis.
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