Bernard B. Katz, the Los Angeles financier who built two fast-growing high-tech companies that subsequently flopped, has sued Bank of America and Downey Savings and Loan Assn. in Costa Mesa for $315 million, alleging breach of contract in their liquidation of a third company in which he owns a 45% interest.
The financial institutions are trying to recover $15 million in loans made to Helionetics Inc. of Irvine, a once-soaring laser firm that Katz bankrolled. Helionetics filed in Bankruptcy Court in Santa Ana last year for protection from creditors under Chapter 11.
Katz alleged in his Orange County Superior Court suit that Bank of America has forced Helionetics to sell substantially all the assets of HLX Laser Inc., a company Katz and Helionetics created to develop laser technology. Helionetics owns 55% of San Diego-based HLX, which has not filed for bankruptcy.
Approval of a reported $4.2 million sale of HLX assets to General Dynamics Corp. in St. Louis is pending in Bankruptcy Court in Santa Ana.
The suit alleged that Bank of America violated a 1984 stock agreement between Helionetics and Katz that prohibited HLX from selling its assets, merging with any company or liquidating itself without written approval from Katz.
Katz alleged in the suit that, without his knowledge, Bank of America "coerced" directors of both HLX and Helionetics to pledge the assets of HLX for "repayment of past and future" loans to Helionetics.
"I haven't seen any evidence indicating that HLX Laser benefited from any funds provided by Bank of America," said Lawrence A. Cox of Los Angeles, a lawyer for Katz.
Though Downey Savings is named as a defendant, the suit does not specify any contract breach or fraudulent conveyance against it. Cox said the S&L is named because it will share in the proceeds from the sale of HLX assets.
A Bank of America spokesman said Tuesday that the bank denies the allegations and that the suit is without merit, but he would not discuss Katz's specific claims.
Helionetics and, before that, Xonics Inc. in Van Nuys, were shooting stars for Katz, a high-profile financier described by associates several years ago as a "consummate promoter" who is "brilliant," "irrepressible" and "hyperactive."
With both Helionetics and Xonics, which Katz ran during the 1970s, Katz brought prominent people from politics, finance and military circles onto the boards--including former Treasury Secretary William E. Simon, physicist Edward Teller and John Eisenhower, son of the former president.
The Xonics rise on the over-the-counter market was cut short in 1977 when the Securities and Exchange Commission sued the firm and its top management for fraud and manipulation of the company's stock price. The suit was settled immediately, with Katz and others not admitting any guilt but agreeing not to engage in any illegal activities.
The problem-ridden company eventually gained new management and a new home outside Chicago.
Helionetics stock rose to $30 a share before plummeting to less than $1 a share.