Nearly a year after stockholders of ICG Communications filed lawsuits alleging fraud and misconduct by corporate officials, a federal judge in Denver has yet to appoint a lead plaintiff to allow the $655 million securities complaint to go forward.
DENVER - Nearly a year after stockholders of ICG Communications filed lawsuits alleging fraud and misconduct by corporate officials, a federal judge in Denver has yet to appoint a lead plaintiff to allow the $655 million securities complaint to go forward.
Federal District Judge Daniel Sparr named the Retirement System of Alabama, the Chicago Police Benefit Fund and Strategic Market Analysis as "interim lead plaintiffs" to allow them to file a claim with the federal bankruptcy court in Delaware, where ICG is in Chapter 11 reorganization.
Attorneys for the institutional investors, estimating for the first time the amount of potential loss for investors that bought into ICG less than a year before its collapse, said that the class action claim was worth at least $655 million. ICG claimed assets of slightly less than $3 billion, and liabilities of some $2.7 billion at the time of its bankruptcy filing.
More than a dozen separate lawsuits were filed in Denver federal court late last year by private and institutional investors, claiming fraud and mismanagement by former CEO J. Shelby Bryan, former President John Kane and others led to the companys demise.
Legal action against the corporation - once the largest competitive local exchange carrier in the country - is currently stayed by the pending bankruptcy. But the cases against defendants Bryan and Kane are open.
Both Bryan and Kane have declined comment on the litigation through their attorneys. ICG has also declined comment.
Edward Rosenthal, a bankruptcy attorney representing the temporary lead plaintiffs in the Chapter 11 case in Delaware, sought permission earlier this year from federal bankruptcy Judge J. Peter Walsh, to extend the deadline for filing the class action claim.
The filing is the first public document to show the amount of potential damages stockholders said they incurred as a result of alleged misconduct and misleading statements by company officials.
Former ICG employees, along with internal company documents obtained by Interactive Week
earlier this year, indicated that the company boosted its revenue figures by recording sales for services that were never delivered. They also raised allegations of criminal activity within the company, including the theft of millions of dollars in company equipment, falsified sales records, securities fraud and potential violation of bankruptcy rules.
The U.S. Bankruptcy Trustees office in Wilmington, Del., has not responded to repeated requests for comment about whether that office is investigating those issues. Federal law requires U.S. Bankruptcy Trustees to investigate all allegations of fraud, overreaching and misconduct in cases in the federal bankruptcy system.
Assistant District U.S. Bankruptcy Trustee Roberta DeAngelis acknowledged that her office would review reports published in June in Interactive Week that detailed
the allegations. But neither she nor her boss, U.S. District Trustee Patricia Staiano, has returned phone calls since.
According to internal company documents and former employees, corporate officials routinely used company expense accounts to pay for personal expenses. Money from corporate expense allowances was also allegedly used by Bryan - former chairman of national fundraising for U.S. Senate Democrats - to pay for political events.
Bryan and Kane have declined comment on those allegations as well, as have ICG officials. Although Bryan resigned as CEO of ICG last year in the wake of the companys financial troubles, he remains on ICGs board of directors.
Randall Curran, named CEO of ICG to take the company into Chapter 11, has refused to speak with Interactive Week
, but he told local reporters in Denver, where the company is based, that he expects ICG to emerge from bankruptcy protection late this year or early next.
Former employees have acknowledged talking to investigators from the Securities and Exchange Commission about the allegations. Curran told reporters that ICG is not aware of any SEC investigation. SEC officials would not confirm an investigation is under way, but said earlier this year that the company would not necessarily be aware of an investigation unless company documents were subpoenaed by the agency.
Attorneys in New York who represent the Retirement System of Alabama, the Chicago police retirement fund and other plaintiffs declined to comment on why Sparr has yet to appoint a lead plaintiff in the case. Federal court rules generally require such rulings within 90 days after potential members of a class action have been notified of the court proceedings. Until Sparr rules, attorneys for the plaintiffs cannot take depositions or subpoena documents in their investigation of the issues.