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XanGo co-founder sues partners over alleged misuse of funds

Published May 20, 2013 11:51 pm

Courts • Suit says execs spent lavishly, while they portray complaint as a smokescreen.
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

A co-founder of Utah mangosteen juice marketer XanGo is suing his business partners, claiming they mismanaged company assets for their personal benefit, spending millions on vacations, luxury items and gifts for family and friends.

They counter that the lawsuit is nothing more than a bid to direct attention away from his poor performance, which has prompted an effort to cut ties with him.

The 38-page civil suit, filed May 16 by Bryan B. Davis in Salt Lake City's U.S. District Court, also contends the founders used intimidation and threats to force employees into looking the other way when personal expenses were submitted for payment as business expenses.

Founded in 2002, XanGo is a Lehi-based multilevel marketing company that sells nutritional supplement products internationally.

Named as defendants in the lawsuit were Aaron Garrity, Gary Hollister, Gordon Morton, Joseph Morton and Kent Wood. Also named is chief financial officer Nate Brown, whom Davis' attorneys contend set up secret accounts so company founders could use Xango credit cards and cash.

In an e-mail sent to The Salt Lake Tribune , Bryon Benevento, attorney for the defendants, said Davis' claims lack merit and are an attempt to embarrass his partners, with whom he is negotiating a separation agreement. Benevento said he believes the lawsuit is designed to "extract an inflated buyout from them for his shares in the company."

"Several months ago, the XanGo board offered Mr. Davis a separation agreement due to his ongoing failure to fulfill his responsibilities," Benevento said. "We are confident in refuting these unfounded allegations and we will show how Mr. Davis' poor performance provided the company with grounds to dismiss him."

Davis is seeking punitive damages of not less than $3 million and wants the court to strip his co-founders of any managerial role in the company.

In court papers, Davis' attorneys contend Garrity fostered a "culture of giving" that encouraged the misuse of company funds. Among the expenditures were luxury watches and jewelry, furniture, electronic equipment, Fender Stratocaster guitars, event tickets, sports equipment, Vespa scooters, country club memberships and exotic vacation destinations that were reached by private jet.

The court papers also say Garrity used company funds to buy expensive suits — and build a suit closet in his home to keep them — and gave Andrea Waterfall, who is described as his mistress, company credit cards and cash for shopping excursions.

The lawsuit alleges that "almost from the inception of the company, Aaron Garrity saw XanGo as an opportunity to enrich and promote his personal interests."

A similar lawsuit was filed in state court in 2007 against XanGo leaders, including Davis, by shareholder Angel Investors LLC, which had demanded access to company books and records. A 4th District judge dismissed the lawsuit, although the ruling was later overturned by the Utah Supreme Court and a settlement was reached between XanGo and Angel Investors in 2010. Terms of the settlement were not disclosed.

jdobner@gmail.com