| Why anyone would ever do business with or even, ya know "consult" for Joe Bruno's BFF, Jared Abbruzzese, is simply beyond me. The Albany Times Union's piece about "Jerry" Abbruzzese that I cited in this post paints a pretty unflattering picture of a man that seems to leave a pretty crowded wake of unhappy and litigious former investors and partners wherever he goes. Many of these former associates feel that Mr. Abbruzzese often neglects the interests of shareholders and the companies themselves in favor of fattening his own bottom line.
Though commenter kashew seems to think that "Jerry" is getting a bum rap, there does seem to be a pattern here. Let's start with Motient, shall we?
Motient Sickness
One of the screens I run regularly in CapitalIQ checks for companies with negative gross margins, negative cash flow, negative earnings--and a stock price that's up 100% or more for the year. I'm always curious when apparent dog stocks have big run-ups. Until recently, the results of this screen regularly included Motient Corp., a Lincolnshire (Ill.)-based provider of two-way wireless communications with a $1.3 billion market cap and a stock that trades on the Pink Sheets (an unusual combination). What knocked the company off the list wasn't an improvement in its fundamentals, which still stink, but rather a mysterious end to its stock rally. When I dug a little deeper, I found a web of intrigue so tangled that Peter Parker couldn't find his way out of it. Even in this scandal-a-day era, the backstage drama at this company is off the charts.
More on the flip... |
The current brouhaha centers on a legal battle between Motient's board and its largest shareholder, Dallas (Tex.)-based hedge fund Highland Capital Management. To complicate matters, Highland president James D. Dondero is a member of Motient's board and is pitted against the other six directors, who allege that he voted to approve some of the measures he now condemns.
>In August, Highland sued Motient's officers and directors in Chancery Court of Delaware, claiming the defendants tried to line their pockets with Motient's cash by paying exorbitant fees to firms in which they held interests. The suit focuses especially on Motient chairman Steven G. Singer, his brother and convicted felon Gary A. Singer, and former Motient director Jared E. Abbruzzese.
According to the complaint, Motient hired Abbruzzese's Albany (NY)-based consultancy Communication Technology Advisors (CTA) in May 2002 to provide financial advice while Abbruzzese was still a director at Motient. At the time, two other CTA employees, Peter D. Aquino and Gerald S. Kittner, were also Motient directors. Since then, CTA has functioned as Motient's de facto executive management and has received over $3 million in fees and tens of millions of dollars worth of warrants to buy Motient stock, Highland's complaint says.
The complaint further claims that Abbruzzese and CTA in 2004 pressured Motient's board to hire a small Austin (Tex.)-based investment bank, Tejas Inc., to raise money for Motient. However, Abbruzzese allegedly failed to disclose that he owned options to buy 100,000 shares of Tejas. As a result of fees and warrants paid by Motient, Tejas' annual profit increased over 2,600%, and the Tejas shares underlying Abbruzzese's options appreciated 900% in one year. In March 2005, Motient appointed Barry A. Williamson to its board, a Tejas director who owns over 51,000 Tejas shares. In May 2005, Tejas announced it would acquire CTA for $65 million. Abbruzzese was appointed vice chairman of Tejas and granted a generous employment agreement and stock-option package.
Wow. My head is spinning from all this apparent self dealing and astronomical appreciation in value. Tejas annual profit increases 2,600% while Abbruzzese's stock soars 900%. Jerry got himself a nice new job, too. Nice work if you can get it. I am so obviously in the wrong business.
Now ask yourself, who do these actions benefit more? Motient or Abbruzzese and crew?
Abbruzzese's alleged conflicts run deeper. In fiscal year 2004, Motient lost $72 million on revenues of $36.9 million. What, then, accounts for its $1.3 billion market cap? The company has a 40% stake in Mobile Satellite Ventures (MSV), a Reston (Va.)-based provider of mobile satellite communications that owns valuable spectrum licenses. MSV is a limited partnership, and its general partner is Motient Satellite Ventures GP, Inc., whose managers are Abbruzzese and Kittner of CTA. "Motient's purchases of MSV units in 2004 at prices that reflected ever increasing valuations of MSV enriched Kittner, Abbruzzese and CTA through their ownership of MSV units," Highland's complaint says.
As if that weren't enough, Highland's complaint disputes the independence of Motient directors with ties to Motient chairman Steven Singer, who also serves on the boards of New York-based Internet infrastructure company Globix Corp. and Englewood Cliffs (NJ)-based secure printing company American Banknote Corp. Motient director Raymond L. Steele is on the boards of Globix and American Banknote, too, and Highland's complaint says "Steele is controlled and dominated by the Singers, and dependent on the Defendants for compensation he receives as a director of Singer-affiliated entities Globix and American Banknote." Motient director C. Gerald Goldsmith is an American Banknote director and "is controlled and dominated by the Singers and has a history of business with them," the complaint adds.
What a mess. What about the books? They're a mess too, another hallmark of companies associated with Mr. Abbruzzese.
Investors sick of the squabbling might want to make up their own minds about Motient. But then they'd have to rely on financial statements that are dubious at best. In 2002, Motient's former auditor, PricewaterhouseCoopers, found that the company's internal controls were sorely lacking. Various ledgers were not being reconciled with each other in a timely fashion. Supervisors weren't reviewing accounting adjustments. No formal policy existed for impairment of long-lived assets.
In 2003, Motient's management claimed it took steps to fix the problems but also decided to fire PricewaterhouseCoopers and replace the firm with Ehrenkrantz Sterling & Co. LLC--the company's third auditor in two years. Motient had disagreed with PwC over how to account for proceeds from transactions with MSV and sales of assets to wireless startup Aether Systems. After some back and forth, the SEC signed off on Motient's accounting but objected to some of its prior treatments of the transactions in question.
But Motient still couldn't get its accounting right. In an amended annual report filed in April 2005, the company revealed that as of December 31, 2004, it had found two material weaknesses in its financial controls related to information security and lack of oversight. In May 2005, the company had to file three amended quarterly reports and one amended annual report in response to comments from the SEC about insufficient disclosures.
Shoddy bookkeeping should sound familiar to those paying any attention to the fortunes of Tejas, Inc.
Tejas Securities facing more fines for violations alleged by NASD
An Austin securities firm has been fined and censured by the National Association of Securities Dealers for the fourth time in two years.
Tejas Securities Group Inc., a registered broker-dealer in several states, recently was fined $12,000 by the NASD for failure to execute trade orders in a timely manner.
... The latest fine is part of a total of $149,000 in fines that the firm has paid in its history.
Arnold Reed Durant, a principal with the firm, was suspended for a total of 40 days in 2004, according to the NASD. He also was fined $25,000 in 2004.
When it comes to NASD investigations, the suspension of Durant is notable. According to the NASD Web site, less than 1 percent of registered representatives -- totaling 333 -- were suspended in 2003.
Four fines in two years? Tejas obviously can't take a hint. Neither can Mr. Durant apparently.
Abbruzzese seems to have a pattern here and it ain't a pretty one. This is the most powerful Republican in New York's BFF? Bruno actually "consults" for this guy?
What exactly does that "consulting" consist of? Perhaps Bruno is teaching "Jerry" and his rather shady crew new and inventive ways to loot companies that were unwise enough to put them on the payroll? |
