With IPO approaching, partner sues Brazil’s Smart Fit; owner files countersuit

RIO DE JANEIRO, BRAZIL – As SmartFit, Latin America’s largest fitness chain, approaches its  initial public offering (IPO), dark clouds are brewing over its founder Edgar Corona.

These concerns go beyond the federal supreme court (STF) Fake News investigation.  Corona also seems to be fighting a war with his gym network partners, as ‘Veja’ reports today.

On Thursday, June 24, the partners asked the courts to block a portion of the company’s stock to secure a stake in the company. They also want the CVM (Brazil’s securities regulator) to take action because documents submitted in the lawsuit could indicate irregularities in the company’s cash flow, including an inflated balance sheet.

Before the 2nd Corporate Court of São Paulo, the case involves ADV Sports, Smart Fit’s Brasilia branch, which accounts for about 8% of the network’s total sales. They joined the lawsuit after receiving notice that they would not be able to participate in the IPO.

The problem is that the IPO seems to be the only time the partners could make some profit after more than 10 years in which they only put money into the company and never took any, writes Veja.

For this reason, they ask the judge to temporarily block a sufficient number of shares so that should they finally win, they will have secured their share in the company. However, if the shares are sold, they envision an even more complicated lawsuit, because other buyers of the shares would then be involved.

In the lawsuit, they also demand that the São Paulo State Court inform the Securities and Exchange Commission of the case, which Smart Fit did not include among its liabilities in the IPO notice it already sent to the market.

“It is perplexing that Smart Fit did not mention the existence of the present litigation in its draft preliminary prospectus for the stock offering,” the petition states.

In this regard, Corona’s partners in Brasilia included the minutes of the shareholders’ meeting held in April of this year. In it, they recorded a separate vote against the approval of ADV’s financial statements to reveal ambiguities.

Edgar Corona sues partners

Corona’s lawyer published today a notice about the case accusing the business partner of trying to “cause turmoil in the IPO company.”

According to the businessman, Smart Fit became aware of a “new attempt by the shareholder of the Brazilian subsidiary ADV, Adalberto Cléber Valadão, to torpedo the company’s IPO process.”

“Valadão lies in his allegation that there are manipulations in the balance sheets. Smart Fit’s balance sheets are audited by Deloitte and are public and have never been questioned. Given the attitude of Mr. Valadão, who is a partner in a subsidiary that represents 3% of the number of Smart Fit stores, the company has filed today a bad faith lawsuit against him to restore the truth of the facts and ensure the transparency of the process,” says Corona to Veja.

Smart Fit is the 5th largest sports gym chain globally and the largest in Latin America, with over 800 units in Brazil and 10 other countries in the region, and has over 1.5 million enrolled customers. According to the International Health, Racquet & Sportsclub Association (IHRSA), Smart Fit is the 4th fastest growing chain in units over the past five years.

Created in 2009, headquartered in São Paulo, it is the low-cost chain of Grupo Bio Ritmo, owner of the homonymous gym network Bio Ritmo.