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Influential Indian Americans embroiled in lawsuit

Last updated on: April 17, 2012 21:53 IST

Influential Indian Americans embroiled in lawsuit


Aziz Haniffa in Washington, DC

Dr Zach Zachariah, longtime Republican Party stalwart and major raiser of funds, has sued his one-time protege, Dr Akshay K Desai, another leading GOP activist who was recently named finance chairman of the Republican Party in Florida.

Newspapers in the sunshine state have dubbed it as a nasty legal battle between titans in Republican fundraising circles, with tens of millions of dollars at stake.

It has set political circles in Florida abuzz because both Zachariah and Desai are friends of all the major political figures in the state including Republican kingmaker and former governor Jeb Bush.

Zachariah served on the Florida State Board of Governors as chairman of the Florida Board of Medicine and also on the President's White House Commission on Asian Americans and Pacific Islanders, on which Desai later served from 2005 to 2008.

Zachariah, who has been a close family friend of the Bush family for decades, was strongly rumored to have been offered the Surgeon General's post during President George W Bush's first term, but had declined the position.

Recently, both Zachariah and Desai have come out in support of Republican Presidential frontrunner, former Massachusetts governor Mitt Romney, although Desai initially was one of Texas Governor Rick Perry's early supporters and stuck with him even after Perry cut a sorry figure in the Republican primary debates. Desai endorsed Romney only after Perry withdrew from the race.

Thiruvananthapuram-born Zachariah, 61, is a leading cardiologist in Fort Lauderdale. Surat-born and raised Desai, 53, is a geriatrics specialist in St Petersburg who is chairman of the board, president and chief executive of the Universal Health Care Group, Inc, a major Medicare provider.

In the lawsuit filed March 30 in the Miami-Dade circuit court, Zachariah alleged that Desai not only unilaterally and improperly kicked him off the board of directors at their jointly owned company Universal, but that subsequently Desai issued 57 million additional shares of common stock without any shareholders or board meeting, reducing the value of Zacharia's ownership share in the company from 20 per cent to about 14 per cent.

"Universal has an entity value of hundreds of millions of dollars," the lawsuit filed by Zachariah's attorney Monty Steinberg of the law firm of Bilzin Sumberger said. "Therefore, at least tens of millions of dollars of (Zachariah's) ownership stake in Universal purportedly has been stripped from him," he said.

It asked the court to reinstate Zachariah back on the board with full rights and privileges, pay his attorney's fees and compensate him for the loss that he has incurred.

Zachariah told India Abroad that he was a co-founder of Universal with Desai and that "He owns 78 per cent and I own 19.6 per cent of the company. Because of my involvement, some of my family members, friends and acquaintances invested in excess of $30 million to acquire shares in the company."

Zachariah said the company's initial by-laws had clearly stated that "I shall have at least one board seat as long as I own 5 per cent stake in the company, and that if I should choose not to be on the board, I can nominate someone of my choice and that person shall be placed on the board.

"When the Securities and Exchange Commission filed a civil complaint on me in May 2008 (for alleged insider trading while he was director of another company), I immediately informed AK (Desai) and after much discussion he asked me to step down -- contrary to my desire -- and recommend someone in my place," he said.

"I initially recommended my son Reggie, a law student at the University of Florida. Desai initially agreed and then said no. Then I recommended my second son Ryan, a CPA (certified public accountant) with KPMG in New York. He agreed and Ryan went through the Florida insurance application process and finger-prints, etc, for final approval. After obtaining the necessary approval, and approval from KPMG, AK was informed that he was ready to serve. But AK refused, " he added.

Zachariah said Desai then made him an offer 'to step down as a observing non-voting member with no rights, which was totally contrary to all the written agreements.

" had no choice but to refuse. On January 9, 2009, he illegally and unilaterally removed me from the board without cause. I wrote to him and talked to him to reconsider Ryan's appointment and he again refused. I then recommended Dr Joe Thomas from Vero Beach, but AK again refused," he said.

"During the SEC case," he said, "I stayed focused on that case, and December 20, 2010, when I was totally exonerated by the federal judge, I immediately called AK and requested that I be reinstated. He said he would consider and take it under advisement, but to no avail."

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Image: The Desai family


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He said from then on -- from December 2010 until August 2011 -- "I have had many conversations with his lawyer at AK's request without any result. In September 2011, I had my attorney contact Desai's in-house counsel, Sundip Patel, but they kept on delaying. Patel told me that AK doesn't want to talk to me on the phone but only by personal appointment. Finally, I met him March 3 at the Breakers Hotel in Palm Beach and he told me that he was not going to appoint me and that he will appoint a few new board members in the near future," he said.

"To my dismay, he sent me a form to sign on March 21, which showed my shares had been diluted from 19.6 percent to 13.76 percent without any explanation," he added.

Desai told India Abroad: "The allegations are totally unfounded. Of course, my attorney will review this (the lawsuit) but we would defend against these allegations very vigorously." He denied that Zachariah was a co-founder or early investor, saying, "The company was founded in 2002 and he came in only in 2006."

Desai refused to comment if he kicked Zachariah off Universal's board because of the SEC's allegations. "I would refrain from answering these questions because I would have to answer these questions in court at some point."

When reminded that he and Zachariah were close friends and major Republican Party activists, Desai said, "It is absolutely saddening and disappointing. This is almost a betrayal."

In 1989, Desai moved to St Petersburg to take over a geriatric practice. The likes of then well-seasoned GOP operatives and raiser of funds like Zachariah and Tampa thoracic surgeon Dr Raghavendra Vijayanagar, founder and chairman of the Indian American Republican Council, sensed Desai's talent not only as a potential raiser of funds but also a well-informed political activist who could lend himself to the Indian-American involvement and play in the GOP big-leagues.

They co-opted him into Florida Republican Party circles and introduced him to the major players including Jeb Bush.

Fort Lauderdale gastroenterologist Dr Raj Gupta, a longtime senior member of the American Association of Physicians of Indian Origin, told India Abroad that he and his wife Shobha, also a physician specialising in psychiatry, had invested to the tune of over $4 million -- their retirement savings and monies they had kept for their children's education -- in Universal largely on Zachariah's recommendation.

"There were about 30 to 50 Indian physicians who put money in Universal in 2006," Gupta said, "but since then we have not received any reports. Now I find that our shares have been diluted and Zach has been removed from the board. It's very disturbing. I tried to talk with Desai but he did not give an explanation. Now we have to make appointments with him and can't even get him on the phone."

Gupta said he had never received any dividends or reports and had no clue whether he would ever see a return on his investment. "I would like to know what is going on in the company -- this is our retirement money and we are very upset," he said.

Another investor, Abhijit Pandya of Boca Raton, a professor of electrical engineering at Florida Atlantic University, echoed similar concerns about "the status of my investment and the dilution of share-holder value."

Pandya told India Abroad, "Several others who own stocks are preparing to file a class action suit against Desai. They are also concerned about the fact that at the time of issuance of stocks, Zachariah, who is a co-founder of Universal Healthcare, was on the board of directors and now he has been removed from the board. The board presently consists of Desai, Desai, and Desai (apparently Desai, his wife and daughter).

Stockholders are completely at the mercy of the Desai family, which was not the case when they invested."

Pandya alleged another major concern was over reports that donations of over $770,000 had been given to the state and federal campaign organizations from Universal Healthcare by Desai and his wife to buy influence in GOP circles both at the state and national levels, which had been reported in the St Petersburg Times.

"(While) the shareholders have been kept completely in the dark, he (Desai) had used large sums of company money to donate to political campaigns to raise his stature," Pandya alleged.

The St Petersburg Times said Universal serves 116,000 members in 19 states, has an annual revenue of about $1.1 billion, and employs about 1,000 employees who work out of the company's downtown St Petersburg headquarters.

The newspaper spoke of how Universal's 'expansion had significant bumps', and that in 2007, 'state regulators called for liquidating the company unless it shored up reserves by more than $150 million. Universal was drawing a slew of consumer complaints for poor customer service, denial of treatment and aggressive marketing.'

The company settled with the state after paying at least $450,000 in fines and legal fees, and although Desai had told the newspaper that those problems are long gone, the state office of insurance regulation had refused comment on whether there were any ongoing enforcement actions against Universal.

In an earlier interview with India Abroad when he was appointed finance chairman of the Florida Republican Party, Desai said, "My company is now doing business in 20 states and this year, we are expecting a revenue of $1.5 billion."

Image: Dr Zachariah with Governors Rick Scott and Jeb Bush

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