LAW:SIRIT awarded $32.5m for Able’s Fraud in MFS Buy

SIRIT, teaming with then top-management of MFS had an agreement with WorldCom to buy MFS for about $100m in the spring of 1998, but in the last days of finalizing the sale WorldCom cut off communications with SIRIT/MFS-management, and announced a sale to Able.

A SIRIT attorney Roberto Martinez sums up the case: “Able and its agent, under false pretenses, obtained confidential information during discussions with SIRIT and misused that information to steal a transaction from SIRIT that was worth millions of dollars.”

The five-week trial in US Court produced no surprises, but provided relentless documentation, with little effort at rebuttal, of crooked dealings between Able and a WorldCom officer, since departed, who made a deal that was detrimental to MFS itself, to its large toll industry customers, to SIRIT, and not least to WorldCom itself. Able was never able to make good on promises to assume the performance bonds of the NJ Regional Consortium, or even to raise the capital to complete the purchase from WorldCom according to the terms of the sale contract.

Several of the key people at the top of Able had a history of crooked business practice including self-enrichment by misleading investors, and producing shonky accounts. After the Able ‘buy’ of MFS there followed a long period of managerial upheavals and staff losses at Able/MFS, in which good people, and bad, left the company, and increasing difficulty performing contracted work. This included the world’s largest electronic toll conversion – an approx $500m Regional Consortium contract – on the New Jersey and Delaware turnpikes, the Atlantic City Expressway and the Garden State Parkway, and continuing operations of a violation processing system. The company is under SEC investigation for irregularities in its shareholder meetings, its accounts and other legally required filings, and is the subject of lawsuits, and complaints from subcontractors. Some suppliers will not deal with it.

The ongoing Able/MFS saga has seriously disrupted schedules for implementation of electronic toll collection in important toll facilities including the New Jersey Turnpike, the Garden State Parkway, Denver’s E-470, and the eight major Caltrans toll bridges in the San Francisco Bay area. The last is a world record for non-delivery of an ET system – five years.

MFS’s non-performance in the Bay area has been a major business setback for SIRIT since it has a contract for the supply of ET equipment there and at least 500k tags that should have long been sold, and in use. This was, however, not a subject of the law suit.

Able/MFS/Adesta continues to operate today only by gaining regular cash infusions from WorldCom on threat of defaulting on $511m of Regional Consortium performance bonds left with Worldcom from the attempted sale. Most of the cash infusions have been converted into Worldcom ‘equity’ in Able so that Worldcom has slipped back into being again the largest single owner of MFS with about 20% of the equity of Able.

SIRIT is now considering whether to proceed with a parallel court case against WorldCom itself for its role in the Able-sale fiasco. A complaint alleging fraud, breach of contract, tortious interference and similar transgressions of lawful business practice by WorldCom was lodged in US District Court in February, but put on hold after Able used the existence of the case against WorldCom as an argument for delaying its trial.

Before the devastating loss in US District Court, MFS was once again scratching for money to pay payroll, and sub-contractors. Major pressure has been put on the Regional Consortium to advance $20m on the New Jersey work on the Turnpike and the Parkway. The Regional Consortium in turn wants WorldCom to front up for another $10m for MFS. It has regularly issued reports of named and unnamed other ‘investors’ who will provide it with tens of millions needed to get it out of its financial hole. Most of these seem to be expressions of interest only, and come to nothing once they see more of the company’s problems.

Able is such an empty shell of a business SIRIT has no chance of collecting its $32.5m award damages from Able unless WorldCom coughs up, so the direct action against WorldCom seems likely to be a way of advancing a settlement between the parties of substance.

The jury in Miami agreed that Able and Davidson intentionally and improperly interfered in SIRIT’s deal with WorldCom, that the deal would likely otherwise have been completed, that Able and Davidson acted deceitfully in misrepresenting their interest and omitting to inform SIRIT, that Able breached a nondisclosure agreement, and that there was damage to SIRIT as a result. The jury also found that Able and Davidson acted with reckless indifference and fraudulent intent, triggering award of punitive damages.

Able’s only comment was that the company still believes the SIRIT suit is “without merit.” Jacob Gornitzky, an investment banker in Toronto, who is chairman of SIRIT says he is elated by the “unambiguous” nature of the jury decision and that it asserts that the rule of law must be respected in business dealings.

SIRIT along with Amtech is a major supplier of Title 21 ET equipment and other parking systems. It bought the rights to Texas Instruments ET systems and business. It has been the major supplier to southern California’s ET and recently introduced systems designed to extend ET equipment into e-commerce applications with a trial using FasTrak toll transponders at MacDonald’s drive-through lanes.

Able: “Purllleeze, guys, don’t bust us!”

We have just learned that Able – nominal owner of Adesta – filed a motion in US District Court in Miami saying that any attempt by the court to uphold the damages award of $32.5m to Sirit could force it into bankruptcy. It also said that it cannot post the bond needed to pursue an appeal. Sirit says it will take steps to get the money as soon as the court allows. Will WorldCom bail this crew out yet again? What rabbits can Billy Ray pull from his sleeves this time.