Sorting Through Lawsuits

By eweek  |  Posted 2001-06-04 Print this article Print

Sorting Through Lawsuits

in october, a month after icgs stock fell to 11 cents per share from the $39 it traded at late in the previous spring, a series of shareholder lawsuits were filed in U.S. District Court in Denver. Each read much like the other, alleging misrepresentation of the companys financials and securities fraud.

The suits named ICG, Bryan and Kane as defendants. One named former President and COO Beans, who succeeded Kane. The case against ICG itself has been stayed by the federal bankruptcy proceedings. But actions against Bryan, Kane and Beans are not affected by the bankruptcy.

Kane filed a motion to dismiss the lawsuits brought against him, saying there was no evidence that he did anything wrong. Bryan and Beans have not yet responded to the allegations in the suits.

Attorneys for plaintiffs, who would speak only on background, said they have attempted to investigate corporate activities, but havent yet had an opportunity to do formal discovery because a lead plaintiff has not been determined.

Several law firms that represent clients with multimillion-dollar losses are vying for status as lead plaintiff in the case, including those representing the Chicago police pension fund and the Retirement System of Alabama, which represents the state teachers fund.

The RSA rarely participates in this type of complaint, said William Kelly Jr., the pension funds chief corporate counsel, "and we would not have filed the action unless we had reason to believe that serious wrongdoing had occurred here."

Nell Minow, known in the securities industry as an expert on the responsibilities of publicly held companies, said the issues that surfaced in inquiries about ICG are serious.

"Public companies must have an aggressive policy that encourages employees to come forward if they have evidence or suspicions of wrongdoing," she said. "To take the opposite tack is dangerous. It can spell a fat, juicy lawsuit."

She said the audit committee of the board of directors of any company also has a fiduciary responsibility to stockholders to ensure that company assets are well-protected, and that company policies are in place to protect investors.

The problem at ICG, says former engineer Alderman, is that "there were two kinds of people — those who wanted to do right and those who wanted to do wrong. I think the guys who wanted to do wrong won out."

Manuel Lopez, who was an engineer at ICGs southern California offices before taking a job at Time Warner Telecom in San Diego, said many people became aware that "inappropriate activity" was going on with the sales staff in southern California. But he said efforts to do anything about it were discouraged.

As an engineer, he said he was frequently asked to supervise installations where lines were oversold. There were a lot of lines being sold, but never installed, he said.

"ICG was 100 percent driven by line counts," he said. "Company financing depended on line counts. It reminded me of the Vietnam era, when all the talk was about body counts. Same kind of thing, about as accurate."

In one case, he said, Brokken made a sale of a large number of T1 [1.5-megabits-per-second] and T3 [45-Mbps] lines to the San Diego Community College District.

"I wanted to cancel the order because it was going to result in more expense than revenue. So [ICGs] response was to take me off the account," he said. "But that was only temporary. They had to put me back on it, because they needed my expertise."

Officials at the college canceled some lines because of long delays in installation, Lopez said. The account, a large one for ICG, which remains in service, was eventually reconfigured.

ICG officials never seemed to care how much it cost to provision lines of service, and ofteninstalled lines that were so expensive to put in "they were not going to make money on them for years," he said.

"It was almost the complete opposite of the atmosphere I see at Time Warner Telecom, where I work now," Lopez said. "Costs are evaluated, service is evaluated. If it doesnt make economic sense to sell the service, we dont do it. At ICG there was way too much money being invested in customers that were never going to give you a payback.

"If anyone had bothered to ask, they would have learned that it was common knowledge among employees that this company was not going to survive with these kinds of business practices," Lopez said. "But there was never any mechanism to communicate that to senior management."


Submit a Comment

Loading Comments...
Manage your Newsletters: Login   Register My Newsletters

Rocket Fuel