TEWKSBURY, Mass. -- The co-founder of Demoulas Super Markets here has been found liable for defrauding the heirs of his late brother of much of their ownership of the privately held supermarket chain.
A jury found Telemachus "Mike" Demoulas liable for securities fraud, breach of fiduciary duty and theft, according to a statement by the plaintiffs' attorneys. The civil suit, which was heard in a Massachusetts Superior Court, said the fraudulent acts occurred between 1971 and 1987.
According to attorneys for the family of the late George Demoulas, the verdict could be worth between $400 million and $800 million to his heirs.
Telemachus Demoulas, who is listed as president and chief executive officer of Demoulas Super Markets, expects to appeal the verdict, an executive of the chain told SN last week. Telemachus Demoulas was cleared of racketeering charges in the suit, which would have tripled the amount of monetary damages. Demoulas, and his attorney, Jerome Gotkin, could not be reached for comment.
Telemachus and George Demoulas founded Demoulas Super Markets in 1954. Demoulas Super Markets and Market Basket, which is owned by Telemachus Demoulas and his family, operate a combined total of about 50 stores and generate annual sales volume of more than $1.5 billion, according to plaintiffs' estimates.
The plaintiffs' attorneys said in the statement they were "greatly heartened" that the jury found Telemachus Demoulas liable "for systematically looting over a [16-year period] the family of his deceased brother. [The] decision is a total vindication of the plaintiffs' charges that Mike Demoulas had defrauded them of hundreds of millions of dollars in violation of an oath made to his own brother and business partner."
The widow and children of George Demoulas filed suit in April 1990 against Telemachus Demoulas, charging him with fraudulently stripping them of their ownership in the family business, and charging that he illegally diverted assets to himself and his children.
The family dispute stems from the partnership the two brothers formed to manage the family business. In 1971, when George Demoulas died while vacationing in Greece, Telemachus Demoulas became co-executor and co-trustee of George's estate, according to plaintiffs' attorneys.
With Telemachus Demoulas overseeing the estate, George's 50% ownership of the company was systematically reduced to 8%, which is now held by Arthur Demoulas, one of George's children. Telemachus Demoulas' family, which controlled 50% of the company at the time of George's death, has since gained about 92% of the company's outstanding stock, according to plaintiffs' attorneys.
The transfer of ownership was accomplished through a number of financial transactions that were unknown to the family of George Demoulas. Family members first discovered the fraud through a state tax audit, according to plaintiffs' attorneys.
A related second trial, which is scheduled to begin in the fall, will determine whether Telemachus Demoulas and others diverted corporate assets of Demoulas Super Markets to other entities, principally Market Basket, which is owned by the Telemachus Demoulas family.