DRTV Marketer Gizmo! Sued for Fraud
Lynn Cartwright, former president and COO of the company, leveled the accusations at Peter Bieler, CEO and owner of several companies, including Gizmo!, GZM LLC. and Media Funding Corp. She is seeking damages of at least $461,200 for lost pay and other costs associated with her employment at the company.
Bieler founded Gizmo! several years ago after making a name for himself by marketing the ThighMaster Exerciser in an infomercial starring celebrity Suzanne Somers. That experience was the source for a book, "This Business Has Legs: How I Used Infomercial Marketing to Create the $100,000,000 ThighMaster Craze," published in 1996.
Before joining Gizmo! last year, Cartwright worked for Kent & Spiegel Direct Inc., a bankrupt DRTV marketer in Culver City, CA. She claims she earned $185,000 a year in her former job and took a $45,000 a year pay cut to join Gizmo!. Her lawsuit includes a confidential letter dated Oct. 23 from Bieler that indicates she would be paid $11,650 a month during the first three months of her employment, which would be raised to $13,370 a month after that.
"We propose giving you 10 percent of the company, vested in equal installments over four years," Bieler's letter reads. "If you wish, we can discuss diluting that interest by adding interest in other companies in the Gizmo! group."
Cartwright alleges these statements were false and that Bieler never intended to pay her $13,170 a month nor give her 10 percent of the company.
Cartwright also alleges Bieler misrepresented the financial health of the company to her, investors and clients, including Peter Breitinger of infomercial company Smart Inventions, Los Angeles, Mike Micek of West Teleservices Corp., Omaha, NE, and Keith Mirchandani, president and CEO of Tristar Products Inc., Parsippanny, NJ.
"Such fraud influenced clients to use Gizmo! to produce infomercials, when in fact Gizmo's undercapitalization meant that the clients were taking on the risk of never having their products reach market," according to the complaint. "[Bieler] also fraudulently moved Gizmo!'s assets to GZM in February and April 1999 to thwart Gizmo!'s creditors."
Cartwright alleges the company also charged the credit cards of consumers and never shipped them any products. "[Gizmo!] charged approximately 10,000 customer's credit cards for the Kitchen Kwik device and 5,000 customers' credit cards for the Smart Gym, while failing to ship products," the lawsuit says.
Cartwright also said she suffered damage to her reputation for being forced to work in a fraudulent environment and should be awarded a minimum of $250,000 for emotional distress.
"We're confident we'll be able to prove the allegations," said Steve H. Haney, an attorney at Haney, Buchanan & Patterson, Los Angeles, who represents Cartwright. "She essentially was an insider at the company and saw what was going on."
Calls to Gizmo! were not returned at press time. The company's answering machine has a message that instructs callers on how to get customer service for inquiries about the Smart Gym and Kitchen Kwik. Callers are instructed to call another number for the Smart Gym, which produces a voicemail message telling consumers who want a refund for the product to call their credit card company and request a chargeback. Kitchen Kwik customers are asked to leave a message with name, address and telephone number for customer service.
Cartwright's suit against Gizmo! follows another suit filed against the company earlier this year by Promax Systems Inc., a designer of video editing systems in Irvine, CA. The company claimed that Gizmo! did not pay fees totaling $5,000 for a video editing system. Charles F. McConathy, president of Promax, said he reached an agreement with Gizmo! to be paid $4,000, but he is still owed about $3,000.