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Bally Suit Rekindles Past Leadership, Woes of Company

CHICAGO -- Times are different these days for Bally Total Fitness, which transformed from a publicly traded company on the New York Stock Exchange to a private company after going through two bankruptcies in the past four years.

But remember the old days of Bally, when men such as Lee Hillman, John Dwyer and Paul Toback were running the company? It's debatable to call that period the “good” old days, since Bally was developing a reputation related to certain issues, such as member contracts, customer service and financial reports.

A recent lawsuit against Bally and those former leaders has rekindled some of those memories. The class-action lawsuit, initially filed in 2004 with roots going back to at least the previous decade, is heading for a resolution.

The U.S. District Court for the Northern District of Illinois in Chicago was scheduled this month to determine its approval of $2 million for the lawsuit's plaintiffs, who claimed that Bally misled investors about the Chicago-based company's financial statements, including its net income, revenues and expenses.

The $2 million from the settlement would go to investors who purchased or acquired shares of Bally stock between Aug. 3, 1999, and April 28, 2004, according to court documents.

“That's just the deal that was struck between the parties,” says Jon Lambiras, an attorney with Berger and Montague P.C., Philadelphia, the firm representing the plaintiffs. “There was give and take on both sides, and that was the amount that we arrived at.”

The settlement represents an average recovery of 6.5 cents per share, but after attorneys' fees and taxes, it's an average of 4.2 cents per share. A stipulation of settlement was entered on June 29.

The first of several securities fraud class actions was filed against Bally on May 20, 2004. Defendants in the case include Bally, Toback (a former CEO), Hillman (another former CEO), Dwyer (a former CFO) and Bally's auditor, Ernst & Young. Of the $2 million, $95,000 will be provided by Ernst & Young, and $1.905 million will be provided by Hillman and Dwyer on behalf of themselves and Toback.

In Bally's defense, it has denied the allegations in the lawsuit, and in July 2006, the U.S. District Court dismissed the complaint, saying the plaintiffs failed to show that Bally acted with intent to defraud. In March 2007, Cosmos Investment Co., the lead plaintiff in the case, filed an appeal with the U.S. Court of Appeals for the Seventh Circuit. The settlement was reached before the appeals court's ruling.

A Bally spokesperson declined to comment on the case.

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