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Richard E. Gray spent Thanksgiving in jail. Whether he spends Christmas and New Year’s there too, instead of in his Park Avenue co-op or at his Litchfield, Conn., estate, is a matter of $4.3 million. That is how much the Manhattan Supreme Court said the lawyer and financier, who heads a number of window-and-door manufacturers, needed to pay into escrow to purge a nearly 3-year-old civil contempt order and get out of jail. Gray claims he does not have the cash, but the court has taken the plaintiffs’ view that Gray is playing a “shell game,” moving money among the companies he controls. It is this alleged behavior that gave rise to shareholder derivative and class action suits against Gray in 1995. Those suits charged that he defrauded shareholders by systematically plundering his companies in order to fund a lavish lifestyle. The plaintiffs won a preliminary injunction against further transfers, and the civil contempt order stems from the court’s finding that Gray violated that injunction when he made $4.3 million in payments to still other companies he controlled. The civil contempt order was issued on Jan. 8, 1999. Last month, on Nov. 19, Manhattan State Supreme Court Justice Karla Moskowitz, acting on a June Appellate Division, First Department, decision authorizing the use of jail as a sanction in this instance, called Gray “totally incredible,” and said that he “had the ability all along to comply with the orders of [the] court,” before sending him to jail for failing to purge the contempt. Gray was taken away from the hearing in handcuffs, and he will remain incarcerated until the $4.3 million is paid. He is being held at the Queens House of Detention. The original shareholder derivative and class actions suits were brought in 1995 by plaintiffs led by Benjamin Richardson, the son of Ambrose M. Richardson, a former law partner and friend of Gray’s. Those suits allege that Gray improperly made $7.2 million in payments to himself through his control of holding company Chariot Group, which was later merged into another Gray-controlled company, Summit Metals Inc. The plaintiffs also allege that Gray misappropriated one of Chariot’s operating subsidiaries, Energy Savings Products (ESP), by purporting to sell it to another Gray company, leaving the shareholders with $15 million in worthless promissory notes. Summit Metals, which succeeds Chariot Group but does not hold Gray’s various operating companies, declared bankruptcy in 1998. Plaintiffs filed claims in Delaware Bankruptcy Court, which were transferred to the U.S. District Court for the District of Delaware, where they remain pending. The New York shareholder derivative and class action claims are now stayed. NO LOVE LOST Gray earlier claimed that the suits were brought as part of a personal vendetta by the elder Richardson, a claim dismissed by the court. If personal animus did not give rise to the claims, there is clearly no love lost between Ambrose Richardson and Gray at this point. Their current mutual enmity represents a complete reversal of a friendship that began in 1969, when both were first-year associates at Mudge, Rose, Guthrie & Alexander, the now-defunct New York law firm which once claimed Richard Nixon and John Mitchell as partners. Richardson was right out of Harvard Law School and Gray was a fresh graduate of the University of Pennsylvania School of Law when the two began working together in the firm department charged with ensuring securities filings’ compliance with state “blue sky” laws. Both left Mudge in the late seventies to briefly join other firms before forming a partnership in 1980. According to Richardson, Gray was the visionary half of Gray & Richardson and he was the operational half. “Richard could sell you on a future like few people could,” said Richardson. “He was an excellent salesman, pretty gutsy actually.” A few years into the partnership, however, Richardson recalled that Gray became less interested in practicing law and more interested in making a mark in the business community. He acquired Sandusky Plastics, which became Chariot in 1986, and he grew preoccupied with running it. Gray & Richardson began to focus primarily on legal issues arising from Chariot’s course of business. The partnership ended in 1988, and Richardson joined the firm now called Richardson Mahon Casey & Rooney in New York. During and after the partnership, Richardson said, Gray began to pursue the luxurious lifestyle detailed in court documents. Apart from his 10-room Upper East Side apartment and seven-acre Connecticut country house, Gray had another home in the Adirondacks. Gray, who is in his second marriage, also has three children attending private schools in Manhattan. The appellate and trial courts both remarked on Gray’s lifestyle, with the higher court directing the lower court to “address the discrepancy revealed by the record between Gray’s lavish lifestyle and his claims of financial distress.” Justice Moskowitz noted that Gray had made virtually no adjustments to his lifestyle. She was further incensed that Gray had pointed to a $2.2 million cash payment made to ESP as an example of an attempt to purge the contempt, when the payment was made to purchase a subsidiary of ESP for another Gray company. At one point, the judge told Gray’s attorney that his client had been going through a “shell game” for years. “There is absolutely no good faith that your client has shown, or respect your client has shown for the orders of this Court,” Justice Moskowitz told William F. Kuntz II, of the Torys law firm, who represents Gray. The plaintiffs were represented by H. Adam Prussin of Pomerantz Haudek Block Grossman & Gross in New York. Gray has also contacted New York’s Jack Litman of Litman, Asche & Gioiella, though, as of Thursday, Litman had not yet filed an appearance.

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