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Investors sue Phrazer maker GeaCom

The Phrazer, developed and built by GeaCom Inc. in Duluth, looks to improve health care delivery across languages. Investors are suing GeaCom for allegedly failing to deliver on sales. (News Tribune file)

Investors are suing Duluth's GeaCom Inc. for millions of dollars, alleging the medical device maker fraudulently led them to buy stakes in the company, according to court filings.

Five minority shareholders, who together invested more than $3.5 million into GeaCom, want to "recover the investment induced by ... false statement regarding pending sales," according to court documents filed in February.

The five investors — Chris Petri, Yi Lu Lu, Keith Petri, Lisa Petri and Keith Kotche — reside west of Chicago in Kane County, Ill., where the lawsuit was filed. The investors are current and former owners of Kristel Displays, a parts supplier GeaCom recently cut ties with.

In a statement provided to the News Tribune on Tuesday, GeaCom disputed the accusations.

"The allegations in this retaliatory lawsuit are legally and factually baseless and without merit," the company said. "GeaCom is confident that it will prevail in the litigation and that the plaintiffs' frivolous claims will be promptly dismissed."

GeaCom was founded in 2007 to develop and manufacture the Phrazer, a device that helps patients and caregivers communicate regardless of language or literacy. The Phrazer was touted as being able to "change the quality of health care all over," an inventor advising the company told the News Tribune in 2010.

The Petris and the other investors signed on to help the company make that happen, but they are not seeing the results they were led to expect, according to the lawsuit.

Between 2011 and 2016, the shareholders increased their investments based on CEO Mat Johnson's "recurring sales projections, statement of pending contracts and public statements about the future of GeaCom," reads the court complaint.

Johnson said sales would reach tens of thousands units per year, according to the suit, but the investors were "shocked by the reported average annual sales of $15,000 a year, or equivalent to the sales of 1.5 devices a year."

"As the truth reveals itself, none of the so-called pending sales were ever realized," reads the lawsuit, which was signed and filed by Chicago lawyer Burton A. Brown.

GeaCom financial statements included in the court filings show the company spent $1.9 million last year and had sales of $79,200; in 2015 the company had about $1.8 million in expenses and $20,000 in sales.

Investors typically have to wait to get a return on their investments in the medical device sector, as research and development costs dominate the early years of such a business.

"GeaCom is experiencing an exciting growth phase with Phrazer," the company said in a statement. "Today, the company is living the dream of 'changing the world' as evidenced with many U.S. and international customers. This success brings both wanted and difficult attention."

But the lawsuit goes so far as to say the investors' money was "misappropriated and mismanaged, and wasted" by Johnson and GeaCom Chief Financial Officer Ralph Romano.

GeaCom, in its statement, says that isn't so.

"Despite the inaccurate and unfounded allegations, the company will continue its focus on equality, excellence and efficiency in the global healthcare market and continuing to do our region and stakeholders proud."

As of Tuesday, the lawsuit was scheduled for a conference before a judge in the Sixteenth Judicial Circuit Court in Illinois on May 2.

Brooks Johnson

Brooks covers business and the economy for the Duluth News Tribune.

(218) 723-5329
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