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Mark Diamond enjoyed a lot of good times at SED International. It’s just hard for him to remember them right now.
Those high-flying days helping the small computer products distributor reach almost $1 billion in revenue and compete toe-to-toe with the likes of Ingram Micro and Tech Data have been eclipsed by his father’s 2003 suicide and his own firing from the CEO position this past summer by the company’s board of directors, whose chairman is his mother, Jeanie Diamond. Then, there’s the lawsuit he filed in November, in which he claims he was wrongfully terminated for investigating alleged impropriety by his mother and others. Now, he is without a job, saddled with more than $100,000 in legal bills and cut off from several members of his family.
“It’s been draining,” Diamond said. “I want to get it behind me.”
But getting it all behind him could cost his family’s distribution company a pretty penny. Diamond is seeking an undetermined amount of compensatory and punitive damages. A significant judgement in his favor could further cripple the finances of a company already struggling to turn a profit. Aside from the lawsuit, he said he has turned over documents to the U.S. Securities and Exchange Commission and filed a complaint with Occupational Safety and Health Administration regarding his dismissal.
In his lawsuit, filed in Superior Court of DeKalb County, Ga., Diamond alleges he was wrongfully dismissed as CEO in July 2005 for actions he took to investigate a shareholder’s complaints. Diamond said he found evidence substantiating the complaints but was met with resistance to investigate from his mother and other members of the board of directors.
Among the shareholder’s complaints are that Jeanie Diamond received $4.4 million following the June 12, 2003, suicide of her husband, Jerry Diamond, who was CEO at the time. Jeanie Diamond received $1 million of a $10 million key-man insurance policy in addition to $3.4 million for the remainder of Jerry Diamond’s seven-year employment contract. A company can take out so-called key-man insurance to protect itself against the death of a high-level executive. SED paid for the key-man policy, and the funds should have gone to SED operations that sorely needed working capital, said Mark Diamond.
The Tucker, Ga., distributor lost $2.6 million last year and its market capitalization was $2.5 million last week. SED has lost money in seven of its last eight fiscal years, a total of $69 million during that period.
In the lawsuit, Mark Diamond alleges his father killed himself because he was depressed over an investigation into the company’s financial practices by the SEC. The investigation appears to have been halted after Jerry Diamond’s death. To date, the SEC has not completed any inquiries into SED and will not comment on any pending matters, according to a spokesman at the commission.
Yet now, the actions of Mark Diamond may lead to another round of difficulties for the troubled family and company.
SED executives declined to comment on several topics for this article, including the lawsuit, the SEC investigation, company financial performance and Mark Diamond. Jeanie Diamond initially agreed to talk to CRN but substituted other executives to speak on behalf of the company, citing a last-minute business appointment.
A SHAREHOLDER’S CONCERNS
The events leading up to Mark Diamond’s ouster began last spring. In a March 2, 2005, letter to SED’s board of directors, shareholder Alvin Katz of Fort Lauderdale, Fla., wrote he was “appalled at the manner in which the company appears to have been run as a private piggy bank for the Diamond family. …” Katz stated that the proceeds from a key-man life insurance policy paid for by the company on behalf of CEO Jerry Diamond was company property. SED’s board gifted the money to Jeanie Diamond after she threatened to sue the company, according to former board members.
“A gift, however characterized, constitutes a breach of fiduciary obligations,” Katz wrote in his letter to the board. “All action necessary to recover the funds should be taken. Any professionals participating in the looting of the company’s resources should be held accountable.”
In addition, another $7 million also was improperly paid to executives, Katz wrote. “Payments of well over 100 percent of the market capitalization of the company upon a change of control are so far beyond the range of customary corporate practice as to not only constitute waste but also shock the conscience,” he wrote.
Katz, who owns 130,000 SED shares according to the letter, did not respond to repeated phone calls and e-mails.
Diamond said he took Katz’s complaints seriously. And, after receiving Katz’s letter, SED’s four-member board put together a committee to investigate the complaints. However, Mark Diamond said he quickly met with resistance while compiling information for the committee to investigate. For example, when he asked for Jeanie Diamond’s employment contract, her assistant told him, “Jeanie said this is none of your business and that you will not be receiving this,” according to a letter Mark sent to the board on June 10, 2005. At the time, Diamond told the board in writing, “This behavior is unacceptable.” He later received a copy of the contract, he said.