Verizon’s Idearc SuperMedia Stock Fraud Exposed
Here is a link to the Class Action Lawsuit filed against Verizon, JP Morgan etc for SuperMedia/Idearc Stock and Bankruptcy Fraud. Verizon, Idearc’s Executive’s including most of the same Verizon and now current SuperMedia leadership, committed a crime! I was a Verizon employee from 2000 to 2006, then Verizon Yellow Pages became Idearc. It all went downhill from there! Looked at the SEC filings and figured out what Idearc did. They may have gotten away with a perfect crime. I just can’t figure out how a bankruptcy court judge would allow it. But considering the compensation of Idearc’s bankruptcy lawyers in Dallas, and the history with the local federal bankruptcy judge… this looks worse than Bernie Madoff!
How to wipe out shareholders and pad the pockets of bankers, hedgefund managers, and executives 101:
Step 1: Create a public company with two accounts one public and one private.
Step 2: Load all debt to the public account at inception, but report all earnings as one entity, which makes most people believe the debt to asset ratio is okay.
Step 3: Put most of the money into the private account.
Step 4: File for bankruptcy and get rid of the public account.
Step 5: Do it again under a new name.
Very clever, but is it legal? The courts will have to decide. The company had $1.7 billion in assets when it filed for chapter 11 and that money was never factored in during the bankruptcy. On at least 3 separate occassions, Verizon has sold or spun off companies which they themselves overloaded with VERIZON debt. (Fairpoint Communications, Hawaiian Telecom, and Idearc Media) All 3 of these companies filed for bankruptcy resulting in massive losses to anyone who invested their hard earned money trusting the Verizon name. I have always been a strong believer in the “buyer beware” philosophy but Verizon’s hands are certainly NOT clean in all of this. Any individual investor who got caught up in this would be hard pressed to defend Verizon. The entire 2006 earnings is a fraud. Verizon declares $772 million net earnings minus any debt. Verizon then spins off Idearc and takes most of the cash and leaves Idearc with $72 million. Verizon set up two accounts in respect of its whole business: one to hold the cash (the $9 Billion that it borrowed), and one to hold the debt for the borrowing (Spinco). The latter it got rid of, but wrapped up in a pretty package, along about Thanksgiving time, called “Idearc” (vaguely reminiscent of a sort of Noah’s arc of supreme “wisdom”), and garnered with a handsome (though very perishable) dividend. Actually, it was a bomb, expressly timed (in the “tax sharing agreement”) to explode exactly at the two year mark necessary to avoid capital gain tax on the transaction.
Check the most recent income and cash flow statements and you will see that the company is an operating cash cow. But in 2009, I think management wanted the bankruptcy to succeed to get out of paying the debt, so they paid out huge sums to bankruptcy attorneys and for marketing consultants. Now that the bankruptcy is over, management owns shares of new stock and will have an incentive to cut costs and raise the stock price. Paulsen had an obvious incentive to provide a low ball value estimation to get the stock as cheaply as possible.
And then, when it did explode in hands of remote purchasers for value (relying on the Verizon name and integrity), and just as was certainly predictable, Verizon, acting like a total stranger, simply walks away. It might have stopped; it might have looked, and thought of something – thrown a blanket over the victim of its own actions – it could have guaranteed the bonds; taken a preferred issue to pay them off, made a short term loan to help its own telephone book get through the recession – many things…but no. The causal agent of the catastrophe acted just like the driver who hits the pedestrian – 437,000. of them in this case – and just goes on driving down the road….the SEC POLICE nowhere to be seen. It is likely the low point of the American securities system and the New York Stock Exchange. Current participants in this don’t want to tell it. History certainly will.
Just in case you wondered:
Counsel to the Debtors (Idearc) – Fulbright & Jaworski L.L.P. 2200 Ross Avenue, Suite 2800 Dallas, TX 75201-2784 T: 214-855-8000 F: 214-855-8200 http://www.fulbright.com
Counsel to Unsecured Creditors – Haynes and Boone, LLP 2323 Victory Avenue, Suite 700 Dallas, TX 75219 T: 214-651-5000 F: 214-651-5940 http://www.haynesboone.com
The Debtors’ actual cash balance as of July 31, 2009 was $616 million.
Latest update: Verizon Sued for Fraud http://www.bloomberg.com/news/2010-09-16/verizon-sued-by-idearc-creditors-claiming-2006-spinoff-led-to-bankruptcy.html