WASHINGTON — The Great Jeans War is raging, with Guess and Jordache locked in a desperate, bitter struggle.
It has nothing to do with fashion or to see who can dominate department store shelves.
This battle is for control of Guess, a fabulously profitable company that is riding the edge of jeans fashion with multiple-zippered, stone-washed, tight-fitting denim goods, the essence of '80s casual chic. The bitter warriors are the Marcianos, four Beverly Hills brothers who founded the Guess firm in 1981, and the three Nakash brothers of New York, who run Jordache.
The war moves into Los Angeles County Superior Court today as the Marcianos ask for cancellation of the 1983 deal in which they sold half their company to the Nakash brothers for $5 million, and agreements for the Marcianos to receive salaries totaling $1 million a year, plus big bonuses.
The fallout has gone far beyond a saga of nasty doings in the garment business:
- Both companies are under investigation by U.S. attorneys for possible tax evasion. The probe of Jordache, which also includes an inquiry into possible customs violations, has been under way in New York since 1986. The U.S. attorney in Los Angeles began a probe of Guess in 1987.
- A congressional subcommittee is searching for evidence of possible misconduct by high Internal Revenue Service officials in Los Angeles. Three investigators from Washington have been working full time since the summer, looking closely at the activities of the IRS criminal investigation division, which handles the most serious tax violations. The probe, which began as an inquiry into the relationship of Guess and key IRS officials, has expanded to a detailed look at the way the IRS handles potential corruption in its own ranks.
- The FBI is investigating how the Immigration and Naturalization Service was fed false information alleging that Georges Marciano had been arrested in France for possession of explosives. Because Marciano is applying for citizenship, the charge could have resulted in his deportation.
The Marcianos believe that Octavio Pena, a security consultant and investigator for Jordache, is responsible for the false information in the immigration file on Georges Marciano. And they have filled their offices and production plants with posters of Pena. The reward is $20,000 for anyone who can identify his plentiful sources of information at the Guess company.
"I'm not stupid enough to plant any forged documents," Pena said.
Both sides have deep pockets, the kind of money that can buy the services of platoons of aggressive lawyers, diligent researchers and resourceful private detectives. With these resources, the Marcianos and Nakashes have assembled masses of damaging material on their opponents to feed to federal agencies. Unlike ordinary citizens, they have the clout to drag the government deep into their prolonged business dispute.
Legal bills have climbed into the millions, but it is an easily affordable burden for both sides, since the Marcianos and Nakashes are multimillionaires.
"I used to say I want to be a dog in Beverly Hills," Hardolf Wolf, an Israeli businessman who brought the two families together for the first deal, said in a taped conversation admitted into evidence. "The best life is a dog in Beverly Hills. Now when they ask me, I say I want to be Georges Marciano's lawyer."
Marshall B. Grossman, the head of the Marcianos' legal team, said in an interview, "It's a pleasure to be Georges Marciano's lawyer, and since I've never been a dog in Beverly Hills I really can't compare the benefits of each."
Access to Funding
The marriage of Guess talents and Jordache capital seemed made in corporate heaven. Jordache, owned by Avi, Ralph and Joe Nakash, immigrants from Israel, has sold almost $2 billion worth of jeans in the last 10 years. It is a major player in the basic market for jeans.
Georges, Paul, Maurice and Armand Marciano, immigrants from France, created Guess--its logo is written "Guess?"--to fill a specialized niche, the high-style, sophisticated and expensive end of the market.
The combination offered the Marcianos access to the administrative and computer expertise of Jordache and the support of the big established company in gaining access to bankers and vendors. In return, the Nakashes won ownership of a hot new fashion product.
The new Guess was an immediate success, becoming a veritable money machine for the owners.
In 1984, the company had sales of $83.6 million and a net profit of $22 million, according to reports obtained by The Times. In 1985, sales totaled $84.1 million, and profit was $18.8 million.
The Marcianos awarded themselves generous shares of the company's earnings. In 1984, they withdrew $1.5 million in April, $341,000 in June, $1.5 million in August, according to confidential documents. The Nakashes received equal amounts of profit distributions, but not until months later, after they complained vociferously that the Marcianos were acting improperly.