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Not A Pretty Picture At Elite


Its name evokes a world of beauty and glamour. But lately, Elite Model Management, the largest modeling network in the world, has developed a bad case of the uglies. Not long ago it was a hot agency, representing such models as Cindy Crawford, Linda Evangelista, and Naomi Campbell. It still has Lauren Bush, President George W. Bush's niece, and former supermodel Paulina Porizkova on its 750-strong roster.

For two years, Elite has been at the center of a $50 million class action. The lawsuit, originally filed on behalf of some 10,000 models against Elite and 12 other agencies, went to trial on June 1. The models allege rampant, decades-long price-fixing. BusinessWeek has learned that most of the agencies named in the suit, including Ford Models and Wilhelmina Models opted to settle the first day of the trial. The terms were not disclosed and the judge still must rule on the settlements.

The suit was just part of Elite's legal woes. In a separate case last year, a jury awarded $5.2 million to Victoria Gallegos, a former executive trainee who sued Elite over a hostile work environment -- they smoked, she had asthma -- and wrongful termination. Elite is appealing. Largely because of that judgment, Elite Model Management New York filed for bankruptcy in February. Its assets, including Elite Los Angeles, Elite Miami, and other North American subsidiaries, are now for sale. Elite Model Management, the New York agency's parent in Fribourg, Switzerland, is not in bankruptcy. According to class-action court papers, models could still go after the assets of Elite founder John Casablancas, who cashed out for millions in 1999, as well as assets they claim were diverted to Switzerland. Says Christian Larpin, a shareholder and the sole director of Elite: "This is judicial terrorism."

Despite the settlement, the class action has thrust Elite and the entire modeling industry into an unflattering light and revealed how skin-deep its glamour is. Lawyers fighting Elite are questioning whether the Swiss parent, headed by President G?rald Marie and Larpin, and Elite New York, both private outfits, have hidden and diverted assets through a tangled web of subsidiaries, franchisees, and Swiss bank accounts to dodge taxes and court awards. Says Larpin: "We have nothing to hide."

The class action, filed in the U.S. District Court for the Southern District of New York, alleges that Elite, founded in 1972, was a pivotal player in price-fixing for more than 20 years. Under the auspices of the International Model Management Assn. trade group, lawyers allege, the agencies met monthly at fancy Manhattan restaurants primarily to discuss fees. (The agencies typically receive 40% of the charge for an assignment: a 20% fee from clients and 20% of the model's pay.)

Elite handed the plaintiffs what looks like a smoking gun. Monique Pillard, Elite's former president, warned rivals in a 1986 memo they risked "committing suicide if we do not stick together" in setting fees. When an exec at another agency complained this might be seen as price-fixing, Pillard replied: "Ha! Ha! Ha!...the usual bulls--t!" An Elite spokesman says the quotes were taken out of context and the business is so competitive that price-fixing makes no sense.

OWNERSHIP ISSUES

In court documents, lead attorneys for the plaintiffs, Boies, Schiller & Flexner -- the firm headed by David Boies, who led the Justice Dept.'s antitrust case against Microsoft Corp. (MSFT) -- allege that Elite has withheld or actively provided false financial information. Top company officials will not tell the court who owns the parent company Elite. In what Boies Schiller says is the "third version of the facts," Elite says it is held by Osiris Ltd. of Malta, "the ownership of which is unknown to both the [creditors] and [G?rald] Marie himself." Indeed, Larpin claimed to BusinessWeek he is not sure who is behind Osiris other than himself.

Financial misdeeds at Elite abound, according to court documents. In a deposition, Mary Ann D'Angelico, an Elite employee who was formerly chief financial administrator, said that when Elite booked a U.S.-based model on a European job, even for an American client, the revenue was routinely sent to Switzerland. Plaintiffs lawyers argued this was "to keep income off Elite New York's financial records" and evade taxes in the U.S. and elsewhere. Larpin counters that such bookings were "rare," adding: "It's never our objective to cheat on taxes."

D'Angelico testified in a deposition that Elite routinely accepted kickbacks from agencies that book models for union TV and film work. Larpin says he is unaware of this. (D'Angelico is under investigation by the Manhattan District Attorney's office. Court documents say she cornered a juror in the ladies' room during the Gallegos trial, painting Gallegos' career as checkered. Neither D'Angelico nor the District Attorney's office would comment.)

Surprisingly, would-be buyers are flocking to Elite like suitors vying to date America's Next Top Model. Donald J. Trump is rumored to be interested, though a Trump spokesman denies it. Catwalk Acquisition Co., an affiliate of Careyes Funding, which has provided financing to keep Elite New York running, is a bidder.

The head of Los Angeles' Diversified Investment Management, former stockbroker Dominic Alvarez, confirms his firm is a bidder, too. According to New York Stock Exchange documents, Alvarez was barred from the securities industry in January following a customer complaint about money he was loaned. Alvarez says he expects to get his license back shortly. His firm is affiliated with Ramy El-Batrawi, former head of GenesisIntermedia Inc., a NASDAQ company that was delisted in 2002. Last year, El-Batrawi, an associate of billionaire Saudi arms dealer Adnan Khashoggi, was named in a stock manipulation investigation by the Securities & Exchange Commission. He's being sued by investors for securities fraud.

A BEVY OF BODIES

Others are less eager. Jeffrey Epstein, a pal of former President Bill Clinton who manages money for such billionaires as Leslie H. Wexner, founder and CEO of Limited Brands Inc. (LTD), had mulled buying the agency but begged off. Sources close to the deal say he was wary of intense infighting between Marie and Larpin for control of the company. Epstein would not comment on the record.

Bidding for Elite, which mainly consists of modeling and management contracts, is starting around $3 million but could go much higher, say people familiar with the deal. Whoever buys Elite won't be responsible for its debts or potential damages. The winning bidder can pay a separate $3.5 million fee to join Elite's global network, which gives rights to use the Elite brand for merchandising and participate in its famous Model Look contests. Creditors are fuming because the fee would go directly to Elite's Swiss parent and not to them. "Elite N.Y. is worth very little without being in the global network. This is basically a pay-to-play fee," says a lawyer familiar with the sale.

The Elite auction is scheduled for mid-June. Says Mark L. Claster, a banker with Carl Marks Capital Advisors, the firm hired to sell the agency: "The Elite name alone is worth a lot. It's a strong, prestigious brand." Perhaps on the face of it.

By Marcia Vickers in New York


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