Picking Up the Tab
Printer, investor and socialite Barry Hirschfeld has a reputation as someone who knows a good deal when he sees one. But he appears to have stumbled badly in his attempt to run in the foot-race business. Not only did Hirschfeld lose his initial investment in the Denver International Marathon, but even now, three years after the race, he is still being forced to make good on outstanding debts the organizers left behind.
Hirschfeld, who owns the company started by his grandfather, A.B. Hirschfeld Press, was one of three businessmen who backed the October 1993 event, teaming up with Californians Jeff Fryer and Gregg Reneau. Each coughed up at least $25,000 for seed money; Hirschfeld also signed on as a guarantor of a line of credit.
Not long after the last runner crossed the finish line, however, Denver International Marathon Inc. hit the wall. Amid allegations of missing money and poor management, Fryer soon abandoned the project. As a result of the nearly quarter-million dollars in debts he left behind--including $50,000 in prize money owed the race's winners--Denver city officials pulled his license to organize the event in the spring of 1994.
Most of Denver International Marathon's unpaid creditors took the hit and moved on. Not Karen Verkutis. As the owner of Corporate Images, a T-shirt and logo manufacturer, she says she couldn't afford to absorb the $43,000 Fryer owed her and stay in business. So she filed a lawsuit.
Recently, the suit was quietly settled. Verkutis says only that she was paid and that a confidentiality agreement prevents her from discussing the terms. But sources familiar with the agreement say that most of Verkutis's debt was picked up by Hirschfeld--raising the printer's financial bath from the event as high as $50,000.
Hirschfeld became involved in marathoning through real estate: Fryer owned a building next to Hirschfeld's old family printing factory off Speer Boulevard and Acoma Street. When the two men met, Fryer mentioned to his neighbor that his next project was to revive a Denver marathon. Hirschfeld, a high-profile Denver booster and the father of a runner, was immediately interested.
Various court documents in the Verkutis case show the progression of Hirschfeld's involvement with the fledgling company. Denver International Marathon Inc. was incorporated on May 28, 1992. In a letter to Hirschfeld that August, Fryer summed up a proposed partnership in which Hirschfeld agreed to purchase $25,000 worth of stock in the new company. In exchange, Fryer offered to make the printer chairman of the board as well as one of DIM's three directors.
The deal was finalized in October. Two months later, in December, Hirschfeld ran a little farther, agreeing to sign on as guarantor of a $100,000 line of credit for DIM's corporate account at Omnibank.
Verkutis began her association with DIM in May 1993, when she agreed to produce shirts and other promotional materials for the race; she also agreed to form a joint venture to produce and sell merchandise related to the marathon. Although she was paid about $20,000 in the months leading up to the race, Verkutis says the payments dried up soon after.
She wasn't alone. By the end of 1993 the marathon was $248,000 in debt. That figure included $50,000 owed to off-duty Denver police officers who worked security for the event. (The cops' debt was cleared in early 1994 by an anonymous donation. Many people connected with the race suspected that it was Hirschfeld, embarrassed by his connection to the race, who wrote the check. He has denied it.)
After trying to collect the money she says she was owed in unpaid-for merchandise and lost profits, Verkutis filed a lawsuit. (Fryer and Reneau, who did not return phone calls, responded in court documents that Verkutis delivered the merchandise late and that it was of "very poor" quality.)
In the suit, Verkutis alleges the reason so many debts were left behind was that the people running DIM gave themselves preferential treatment. Given a shortage of money and a surplus of bills, Verkutis charges, the marathon's directors made sure that they or their businesses were first in line to collect debts.
She points out, for instance, that despite its numerous debts, DIM managed to pay A.B. Hirschfeld the $16,000 it cost to print the race entry forms and that the $100,000 line of credit bearing Hirschfeld's name was paid off on time.
Fryer and Reneau had an even fuzzier relationship with DIM. Before forming the corporation, the two men were partners in Fryer, Reneau & Co., a Santa Monica accounting firm--which happened to be the same company selected to manage the marathon's finances. For its work handling DIM's books, Fryer, Reneau was paid $25,000 up front and, at least for a time, $3,000 per month. In all, Verkutis claims that Fryer and Reneau "lined their pockets" with $135,000, or more than half of the race's $241,000 in gross revenues.
"Preferential payments were made to Fryer, Reneau & Co., Fryer, Reneau and Hirschfeld, leaving DIM with insufficient capital" to pay its other debts, she concludes.
Despite being a partner in the venture from the beginning, Hirschfeld's name did not initially appear in the lawsuit. But in late 1994, Verkutis, who until then had convinced a personal friend with no litigation experience to handle the case, hired an experienced lawyer named Nick Palmer. Palmer quickly concluded that, as a director and officer of the race, Hirschfeld was at least as personally liable for its debts as Fryer and Reneau. Also, unlike Fryer and Reneau, the printing magnate was local--and had a lot of money.
In November 1995 Verkutis added Hirschfeld's name to the list of people she was suing. Three months later the case was settled. Verkutis and her lawyer aren't talking, and Hirschfeld did not return calls. Yet sources familiar with the deal say Hirschfeld picked up most of the tab.
Despite Hirschfeld's appearance as a bad guy in Verkutis's lawsuit, many people associated with the 1993 race feel the printer has been doing his best to make up for a lousy business decision.
It is unclear what Hirschfeld knew about Fryer's background. Although the California accountant did have experience staging successful marathons--he handled the books for the Los Angeles International Marathon for four years before being fired in 1991--other chapters of his background might have raised flags. Fryer has filed for bankruptcy protection three times: once in Los Angeles, in 1991; and twice in Denver, in 1985 and 1992, in connection with the building he partially owned next to Hirschfeld's. As a result, much of the local running community seems willing to pan Fryer and give Hirschfeld the benefit of the doubt.
"Barry's as much a victim here as anyone else," says Leslie Fuller, who worked closely with Fryer to organize the Denver International Marathon. Even Verkutis's attorney agrees. "I think he just got caught up in a bad situation," says Palmer. "My guess is that Barry's grown increasingly embarrassed by this."
Hirschfeld isn't the only one scrambling to cover DIM's old debts. Last year the race was revived as the Colorado Marathon. The new organizers are devoting $5 from each entry form to paying the winners of the 1993 race. So far, with the help of additional donations, they have raised about half the prize money.
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