LOS ANGELES -- A subsidiary of First Executive Corp. filed suit Thursday accusing Merv Griffin, Donald Trump and Drexel Burnham Lambert of inflating the value of Resorts International Hotel in documents filed to promote the sale of junk bonds Griffin used to buy the hotel.
The lawsuit, filed in federal court, names Griffin; Resorts International Hotel; Trump, who was vying with Griffin for purchase of the hotel; Drexel, which underwrote the securities; and Houlihan, Lokey, Howard & Zukin, investment bankers in the offering.
First Executive's subsidiary, Executive Life Insurance Co., bought the notes in November 1988, and said it suffered serious losses when their market price 'fell precipitiously.'
The suit alleges the defendants misrepresented the cash flow, assets and collateral of Resorts International in registration statements in connection with the issuance of $325 million in notes, the proceeds of which.
According to the lawsuit, the individual defendants 'inflated publicly reported assets, earnings, the net worth of Resorts International Inc. and its subsidiaries' to conceal adverse facts such as 'management deficiencies, cash flow shortfalls and over-valued assets.'
Trump was accused of participating so 'that the sale of his shares would go forward and that other lucrative payments and assets would be distributed to him ....'
Resorts International was reorganized under federal bankruptcy laws in December 1989.
Statements in the registration statement and prospectus concerning cash flow, assets and the ability to make interest payments 'were, in fact, false and misleading,' the lawsuit says. 'Further, the value of assets ... and collateral were substantially overstated.'
First Executive itself is the target of at least two shareholders' suits stemming from its purchase of junk bonds.
Last January, the Los Angeles holding company was named in a class-action suit brought by investors who accused First Executive of aiding and participating in a scheme by Drexel Burnham and junk bond chief Michael Milken to artificially inflate the junk bond market.
And in December 1989, First Executive was sued by shareholders who alleged that the company transferred $700 million in junk bonds from its own portfolio to six shell corporations.
In January, First Executive announced that it expected to take a year-end charge of $515 million for losses in the bond market.
Thursday's lawsuit asks for an unstated amount of damages.