KB Toys Inc. has agreed to pay about $5.4 million for most of the inventory of bankrupt Santa Monica Web retailer eToys Inc.

Closely held KB Toys won bidding for seven of 11 lots of inventory and will sell the items at a discount on KBkids.com and at KB Toy Outlet and KB Toy Works stores, officials of the Pittsfield, Mass. company said. KB is also interested in other assets, including eToys' Web address, officials said.

EToys' assets were put up for auction after the company filed for Chapter 11 bankruptcy protection last month, listing $285 million in debts. Founded in 1996, eToys never made a profit and shut down after failing to get funding to stay in business.

Scholastic Corp., the U.S. publisher of the "Harry Potter" series of children's books, canceled an $8 million bid for the inventory last month.

Fraud Alleged

A group of investors have filed lawsuits accusing EarthLink Inc. co-founder Reed E. Slatkin of defrauding them of more than $35 million in what was described as a Ponzi scheme.

Slatkin, who is also being investigated by the Securities and Exchange Commission for his financial activities, resigned from EarthLink's board of directors earlier this month. His lawyer said Slatkin intended to file for Chapter 11 bankruptcy protection.

About 80 individuals, who together invested more than $250 million, attended a meeting last week at the Santa Monica offices of Slatkin's securities lawyer, Gerald E. Boltz. Many of the individuals are members of the Church of Scientology, to which Slatkin belongs.

The investors who have sued Slatkin allege that he used funds collected from new investors to pay returns to older investors, a form of fraud commonly known as a Ponzi scheme. Last month, one investor won a court order to freeze Slatkin's brokerage accounts and other assets, including a ranch home in Santa Barbara.

A lawyer representing the Scientology investors declined to say whether his clients intend to sue Slatkin as well.

Explicit Content Bill Introduced

Three Democratic senators, including former vice presidential candidate Joseph Lieberman and Hillary Clinton, have introduced legislation that would impose fines on a host of entertainment creators who target children with violent, sexual or profane content.

The bill would provide civil penalties of up to $11,000 per offense for movie, music and video game companies found to be violating their own voluntary guidelines.

The action was denounced by Motion Picture Association of America President Jack Valenti and some business leaders from those fields, who charged that the bill would lead to the end of voluntary ratings systems by opening up companies to liability.

Deaton Claims Neutrality

Speaking to the Valley Industry and Commerce Association, Los Angeles Chief Legislative Analyst Ron Deaton disputed the notion that he has been working behind the scenes to thwart San Fernando Valley secession efforts.

Deaton, who is widely considered the most powerful non-elected government official in the city, told VICA members during a meeting at Cal State Northridge that he is neutral on the secession issue.

Valley secession supporters, including former assemblyman Richard Katz, have said they believe Deaton has been quietly working against the movement.

Deaton, who has spent 36 years in city government, serves as the City Council's chief administrative officer, shaping legislative proposals and interacting on behalf of the council with officials in city departments. Most council members oppose secession, and cityhood advocates believe Deaton has served to slow the cooperation between city departments and the county agency studying secession.

But Deaton said he has no opinion on secession and that he believes the impression of him as a secession opponent was formed because he fought a bill that former Valley Assemblywoman Paula Boland proposed several years ago to help the secession cause. Her bill would have removed the council's power to veto a secession proposal.

Unocal Reaches Pact with Refiners

Two of the state's oil refiners announced they have reached agreements with Unocal Corp. that will allow them to produce Unocal's patented anti-smog gasoline blends. Citgo Petroleum and Tesoro Petroleum will pay fees of 1.2 cents to 3.4 cents a gallon for the cleaner-burning gas.

Analysts believe the deals could spur higher U.S. production of the reformulated gas, which is currently used in areas with smog problems.

El Segundo-based Unocal expects its licensing plan to add roughly 1 cent a gallon to retail prices. Some in the oil industry have blamed Unocal's patents as a major factor behind high gasoline prices.

Newspaper Editor Quits

The editor of The Hollywood Reporter resigned following a spat with the trade paper's publisher.

Publisher Robert J. Dowling pulled a story from reporter David Robb in which Robb alleged that former Reporter columnist George Christy accepted favors from a movie company, including credit for film and TV roles that he didn't appear in and that qualified Christy for Screen Actors Guild pension and health benefits.

In a letter to colleagues, editor Anita Busch strongly defended Robb, calling him ethical and "incorruptible." She also said she had serious differences of opinion with the publisher.

Christy has denied the allegations.

Dowling said he was disappointed by Busch's resignation, pointing out that the story was reassigned and published at a later date.

L.A. Company Orders Jets

A Los Angeles leasing company has ordered five freighter airplanes from Boeing Co. in a deal worth an estimated $1 billion.

International Lease Finance Corp., a unit of American International Group Inc., ordered five 747-400 freighter airplanes. The jets are the longest-range version of the 747-400, which can fly an additional 530 nautical miles or carry an extra 22,000 pounds of cargo.

The first plane is scheduled to be delivered in October 2002.

La Verne Manufacturer Targeted

The federal government has joined a whistle-blower lawsuit against a La Verne manufacturer that allegedly provided the U.S. Postal Service with faulty equipment and then fabricated inspection records.

The U.S. Attorney will prosecute a lawsuit originally brought by a former quality assurance inspector of the Medcab Division of Pacific Precision Metals Inc.

Originally filed by George Ocampo in 1998, the lawsuit accuses Pacific Precision of providing defective mail drop units, sorting tables and other equipment totaling $11 million to the Postal Service. Ocampo claimed the company routinely shipped equipment with weak welds, bad paint jobs, sharp edges and parts that didn't fit.

Under the False Claims Act, a contractor who is found to have defrauded the federal government can be liable for up to three times the amount of monetary damages, plus civil penalties of $5,000 to $10,000 for each false claim submitted to the government.

Pacific Precision officials did not immediately comment.

Film Roman Sells Stake

The on-again, off-again deal between "The Simpson's" animator Film Roman Inc. and India-based multimedia giant Pentamedia Graphics Ltd. is back on.

Film Roman officials announced they have reached an agreement with Pentamedia in which Pentamedia will buy 8.5 million shares of Film Roman's common stock for $10 million. Upon completion of the transaction, Pentamedia will own 49.9 percent of Film Roman.

Company officials said that specifics of the transaction were still being worked out last week and necessary approvals will be sought in the near future.

Last month, Pentamedia's long-planned purchase of a majority stake in Film Roman, which also animates "King of the Hill" for Fox and the Warner Bros. show "The Oblongs," collapsed when the company failed to meet an extended deadline on a $15 million deal. At the time, Film Roman officials said the deal fell apart because Pentamedia sought to change the terms from all cash to a combination of cash and future deposit receipts.

New Life for Stan Lee

A Texas investment firm has agreed to ride to the rescue of foundering Spider Man creator Stan Lee Media Inc., providing enough capital to keep the company afloat until a more complete deal can be reached.

Terms of the agreement between Los Angeles-based Stan Lee and Interfase Capital LLP of Austin, Texas were not disclosed.

Stan Lee filed for Chapter 11 bankruptcy protection in February, after it was hit with several class-action lawsuits by shareholders and the trading of its public stock was halted. The company has been seeking a buyer or strategic partner.

Stan Lee officials said that the financing deal is designed to keep the company in business while its management team works out a deal with Interfase to further fund the business. Interfase and its affiliate, Eco Associates, have invested in several struggling companies, including Chipshot.com, a California company that sold golf supplies online.

Co-founder and namesake Stan Lee, who developed the Spider Man character and others such as the Incredible Hulk and X-Men, extracted his company from what had been a lifetime contract with Marvel Comics after that company's bankruptcy two years ago.

Fellow co-founder Peter Paul was reportedly fired in January amid allegations of stock manipulation and embezzlement and has fled the country.

For reprint and licensing requests for this article, CLICK HERE.