The rich young Krok sisters were masterful at selling the success story that made them famous.
Even as their family's legal problems mounted and their firm sank into Chapter 11 bankruptcy last month, the four sisters appeared smiling on the cover of Family Business magazine. The publication credited the Kroks with creating "an important force in the personal care products industry."
For the Record
Los Angeles Times Tuesday September 18, 1990 Home Edition Business Part D Page 2 Column 3 Financial Desk 1 inches; 29 words Type of Material: Correction
EPI Products--Due to incorrect information supplied to The Times by a photo agency, the caption on Monday's story about EPI Products was wrong. The woman identified as Loren Krok is actually Bernice Krok.
For the Kroks' Santa Monica company, EPI Products USA, glamorous, enticing images were essential sales tools. Its one-time smash hit product, the Epilady, was an electric hair removal gadget that promised women soft, silky legs--that is, if they used the device every two weeks, an ordeal that some said was excruciating.
"You had Johnny Carson and Arsenio Hall on television talking about how painful it was, but you had millions of ladies buying it. It became bigger than the Hula-Hoop," said Richard L. Faun, a senior sales executive with EPI until quitting Aug. 1.
Today, EPI's collapse is an example of the hazards of hype, over-optimism and, some creditors allege, of wild spending and financial fraud. Consumers got so caught up in the Epilady fad that many who shouldn't have bought them--women who couldn't tolerate the pain--got the gadgets anyway, only to return them later.
The South African-born Krok sisters, meanwhile, may have let their meteoric rise go to their heads. Business people who dealt with the Kroks and their associates say they ignored suggestions on how to manage EPI more professionally--advice that, critics contend, was needed badly when the firm's annual sales (after returns) zoomed to more than $150 million quickly after Epilady was introduced in 1987.
Worse yet, a batch of private lawsuits accuse privately held EPI and some of the people behind the firm--notably Solomon Krok, the sisters' father--of looting the company and cheating business associates out of millions of dollars.
"EPI's officers and controlling shareholders used EPI as their personal piggy bank," charges a suit by the Bank of New York, Daiwa Bank and Bank One. The EPI principals, the suit says, secretly diverted "more than $20 million into other enterprises in which they were personally involved," including a Broadway play, real estate and automotive supplies.
In an affidavit filed in New York Thursday, a Bank of New York vice president contends that he was told by an EPI lawyer that Solomon Krok this spring received a "preferential transfer" of at least $3 million from the company. According to the affidavit, the payment was authorized because the elder Krok "had been threatened with prosecution under South African law for violation of currency control regulations."
Allan Browne, an attorney for the Kroks, said he knows of no investigations of the Kroks, either in the United States or South Africa. He said the banks' suit consists of "wild and reckless charges that have no basis in fact."
Browne maintained that the Kroks never misrepresented how they were going to use their $25-million bank loan. In fact, he said, the investments in the play and other ventures were intended to diversify EPI and promote the company.
"It may have been, in retrospect, that those investments were not wise and didn't pay off, but that's not fraud," Browne said.
Speaking through Browne, the Kroks blamed EPI's collapse mainly on softness in the entire retail industry, over-optimistic sales projections and the money-losing investments. They also cited what now appears to be excessive advertising spending and the high cost of developing new products.
"The company simply grew too fast, and in the process of growing too fast, it consumed its capital too quickly," Browne said.
Amid the raft of litigation and so soon after EPI's fall, what really happened is unclear. The Kroks declined to be interviewed, but they authorized Browne and Geoffrey D. Lurie, a turnaround specialist EPI hired just before the bankruptcy filing, to comment.
What emerges from legal documents and interviews is a picture filled with contradictions, a family that was warm, friendly and close-knit but also nasty at times toward outsiders. The sisters are described as deft marketers and unrelenting negotiators, yet naive about other aspects of business. Their father is portrayed as philanthropic yet someone who, the banks allege, orchestrated a fraud.
Even the matter of who really ran EPI is murky. The three sisters with EPI from early on--30-year-old Arlene Krok, Sharon Krok Feuer, 32, and Loren Krok, 25--all worked long days and indisputably played significant roles. Arlene, who carried the title of president, was considered the street-smart leader, while a fourth sister, Bernice Krok, 26, didn't come aboard until a year ago.
