Court upholds receiver for body fat company

Monday, Aug. 28, 2000 | 10:54 a.m.

CARSON CITY -- A Las Vegas accountant should continue to act as temporary receiver over a company that markets a medical device to remove body fat, the Nevada Supreme Court ruled.

The court, in a unanimous decision, upheld the decision of District Judge Nancy Saitta, who found evidence of serious corporate mismanagement and fraud at Medical Device Alliance, which was formed in Southern California but incorporated in Nevada. Saitta had appointed accountant George Swarts to temporarily oversee the company.

More than 270 investors, including Nevadans, put up $14.3 million to finance research, development and testing products. Medical Device Alliance entered into an exclusive worldwide licensing agreement with Misonix Inc. to market a patented ultrasound liposuction device that liquefies body fat, then suctions it out of the body.

After allegations of fraud and mismanagement arose and after unsuccessfully pursing the appointment of a receiver in California, the Nevada shareholders filed suit in district court in Las Vegas in March 1999 seeking the appointment of a receiver.

The company and its founder Donald McGhan fought the receivership. They contended the shareholders who filed suit did not hold 10 percent or more of the stock, as required by law to file suit.

The Supreme Court, however, found shareholders with 10.2 percent of the stock were plaintiffs in the suit, which met the requirement.

Swarts, in his first report, said he found waste, fraud and gross mismanagement committed by McGhan and the other directors.

The court said if Nevada shareholders eventually seek appointment of a permanent receiver, the judge must again determine at that time whether there are still the required 10 percent supporting the motion.