USDL hit with shareholder lawsuit

A controversy that U.S. Diagnostic had hoped to contain threatenedto mushroom into something larger this week after the imagingservices provider was hit with a shareholder lawsuit. The lawsuitcharges the West Palm Beach, FL, company with failing to revealthe background of Keith Greenberg, a mergers and acquisitionsconsultant who pleaded guilty to fraud charges in 1994.

The controversy began when investment house Bear, Stearns &Co. announced last month that it was discontinuing coverage ofUSDL due to the company's failure to disclose Greenberg's backgroundin public filings. USDL's stock dropped 22% after the revelation,although other investment houses continued to cover the stock.

USDL executives responded quickly to the imbroglio, acknowledgingGreenberg's past but pointing out that the convictions concerneda retail merchandising business he was involved with in the 1980s,long before USDL was founded. The company admitted, however, thatit incorrectly listed Greenberg as a co-founder and director ofmarketing, mergers, acquisitions, for USDL in a section of its1995 annual report. Greenberg actually works for his own firm,Coyote Consulting, and receives a finder's fee for each acquisitionthat passes muster with USDL's own due diligence.

The shareholder suit was filed Jan. 6 in U.S. District Court forthe Southern District of Florida, charging USDL with violatingthe Securities Exchange Act by failing to disclose Greenberg'sbackground. The lawsuit claims that USDL's stock was artificiallyinflated between March 1996 and Dec. 23, 1996, when Bear, Stearnsrevealed Greenberg's background.

USDL chairman and CEO Jeffrey Goffman said the claims in the lawsuitare "without merit" and that USDL will aggressivelydefend itself. Goffman pointed out that even with the recent drop,USDL's stock has almost doubled since January 1996, when it wastrading at about $5 a share.

"Our stock has had a temporary fluctuation," Goffmansaid. "Our company has outperformed expectations from inception."