Famed Keepsake Creator Christopher Radko Presses Legal Action against Unit of Politically...

Mon Mar 3, 2008 11:52am EST

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Famed Keepsake Creator Christopher Radko Presses Legal Action against Unit of Politically Powerful Private Equity Group

   Radko Launches Countersuit against Rauch Industries for Securities
Fraud and Breach of Contract
NEW YORK--(Business Wire)--
Noted Christmas keepsake, gift and home decor designer Christopher
Radko has mounted a legal challenge against Rauch Industries, Inc. a
company owned by a politically powerful private equity firm that
numbers among its directors former Secretary of State James A. Baker
IV.

   Radko attorneys filed a countersuit in the U.S. District Court in
Charlotte against Rauch, the North Carolina company that bought his
Christmas ornament firm, Starad, in March 2005. The countersuit
alleges numerous violations including securities fraud, fraudulent
concealment, breach of contract, conversion of his personal assets,
wrongful termination and unjust enrichment.

   Mr. Radko accuses Rauch of "gross incompetence in managing their
business in general and their manufactured-ornament division
specifically (which) has caused substantial financial losses at Rauch
and a devastating and ongoing diminution in the value of Radko's stock
in Rauch."

   Rauch is owned principally by Blackstreet Capital Partners, the
Bethesda, MD, private equity firm formerly known as Milestone Capital
Partners.

   Blackstreet's board of directors is comprised of some of the most
powerful names in Washington, including former Secretary of State
James A Baker IV, who is managing partner of the prestigious law firm
of Baker Botts; Thomas Hale Boggs, Jr., chairman of the Patton Boggs
law firm; former U.S. Ambassador to Germany Richard Burt, CEO of
Diligence, LLC; Edward J. Mathias, managing director of The Carlyle
Group; Robert P. Pincus, chairman, Fidelity Bank; top lobbyist Ed
Rogers, a partner in the lobbying firm Barbour Griffith & Rogers;
investment industry leader Arthur P. Solomon, president of DSF
Advisors and Peter B. Teeley, retired senior vice president for
government affairs of Amgen, Inc.

   The countersuit by Mr. Radko is in response to a legal action
filed against him by Rauch last year. The Radko countersuit contends
the "lawsuit by Rauch is not an attempt to recover damages allegedly
caused by Radko, but is instead an elaborate facade designed to
conceal Rauch's gross incompetence, and a diversionary tactic
shamelessly attempting to blame Radko for Rauch's pre-existing and
self-created financial problems." Rather than address problems raised
by Mr. Radko, the countersuit maintains, "Rauch and Blackstreet have
borrowed a technique long-used by Washington insiders to redirect the
blame for Rauch's misdeeds. In a classic effort at political spin,
Rauch, whose Chairman is a managing partner at Blackstreet, now blames
Radko for its financial demise."

   Mr. Radko's countersuit claims that when he "wrote a letter to
Blackstreet's managing partner complaining of the incompetent
management at Rauch and multi-million dollar losses suffered by the
Christopher Radko Division, Chairman Aldus Chapin began retaliating
against Radko, culminating in Radko being placed on administrative
leave in April 2007. Radko was escorted off Rauch's property and was
not even given the opportunity to recover his personal items from his
office." They then "concocted a scheme to force Radko out of the
company and to divest him of any control of the line of ornaments that
bears his name." Finally "in August 2007, disgusted with Rauch's
ineptitude and gross mismanagement of the company, Radko resigned from
the Board of Directors. He did this to protest the management policies
and deceit in which Rauch has engaged."

   The countersuit lays much of the blame for the business failure at
the feet of Blackstreet, noting that Mr. Radko "attended Blackstreet
meetings at which Blackstreet management bragged about buying
companies and then pressuring the sellers through various methods to
renegotiate and reduce the sales price so that the sellers would
receive less than the compensation initially promised and agreed to by
Blackstreet. Radko was astounded to learn of the true modus operandi
of Blackstreet and Rauch. This bait and switch tactic is exactly what
Blackstreet, through Rauch, is attempting to do here to Chris Radko."

   Furthermore, Mr. Radko contends, "Rauch also promised that
Milestone's (Blackstreet's) capital would be used to ensure the smooth
and consistent financial operation of the Christopher Radko division
(but) to Radko's surprise, Milestone/Blackstreet, despite owning 90%
or more of Rauch's stock, did not provide enough capital for smooth
and consistent financial operations. Because of the lack of funding
from Milestone/Blackstreet, Rauch limped along in a precarious
financial position."

   In his countersuit Mr. Radko notes that "in an effort to disguise
its managerial and financial blunders, Rauch attempted to transfer the
manufacturing of Radko brand ornaments to China and planned to sell
Radko brand ornaments through mass trade channels such as K-Mart.
Radko rebuked this proposal because it was contrary to Rauch's
representation that it would maintain the high quality of the glass
ornaments, the integrity of the Radko glass ornament brand and
distribution at high-end channels only. Instead, the switch to Chinese
manufacturers would degrade the quality and value of the Radko
ornaments and Radko brand."

   Mr. Radko's countersuit also notes that "nowhere in Rauch's
complaint (against Radko) does Rauch reveal that it owes at least $4
million for ornaments Rauch ordered from Northstar (a quality ornament
manufacturer) that Rauch has refused to pay for. Rauch's payment
defaults caused Northstar to seek bankruptcy protection in Poland,
resulting in the tragic loss of hundreds of jobs."

   Last month Rauch's attorneys Sally D. Garr, Deborah M. Lodge, and
Jason M. A. Twining, all of Patton Boggs LLP, the law firm whose
chairman is Mr. Boggs, the Blackstreet board member, as well as Kiah
T. Ford IV of Parker Poe Adams & Bernstein LLP, asked the Federal
court in Charlotte for permission to withdraw as counsel for Rauch. No
explanation was given for their request, which was granted.

   In another development, the court said the Radko-Rauch case has
been reassigned to Senior Judge Graham Mullen. A notice from the court
said simply, "Chief Judge Robert J. Conrad, Jr. no longer assigned to
the case."

Christopher Radko
Media:
Kim Lucchese, 212-687-1765
kiml@markhamnovell.com

Copyright Business Wire 2008
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