3/26/2014
Color Star Named in Fraud Lawsuit
Chris Beytes
According to a news report in DallasNews.com (part of the Dallas Morning News), Color Star and its lender, NexBank Securities, are being sued for conspiring to commit fraud. The suit was brought by Regions Bank and MCG Capital Corporation, which claim they lost $35 million and $13.5 million, respectively, when Color Star went bankrupt.
The suit alleges that Color Star overstated earnings, inventory and profit and conspired with its accountants, investment advisors and lawyers to hide it from bank lenders. NexBank’s attorney called the allegations “meritless.”
According to the news report, the focus of the lawsuit is a $40 million loan that Color Star refinanced in 2012. The suit states that Color Star’s auditors told the company that they had overstated their inventory by $6.6 million, When Color Star’s internal controller, Brock Hostetter, revised their financial statements to reflect the adjustment, he was fired. The suit also claims that Color Star’s lawyer helped hide the company’s true financial information from Region’s Bank, facilitating the fraud.
GT