The Milgram Experiment in Crony CEO Capitalism, the Commonalities Between Enron and SuperMedia

September 11, 2010

Stop the Stock Scam by Crony Executives at SuperMedia and Verizon

In the early 1960’s Stanley Milgram, a scientist, wanted to uncover what kind of common characteristics existed in evil people. So he set up an experiment with an actor playing an experimental subject and a real experimental test subject. The real subject would ask a question to the subject (the actor) and then if the subject got the question wrong the real test subject would shock the actor with an “electric charge”, so long as the scientist, an authority,would reassure the test subject that what he/she was doing was the right thing. The electric charge was not real, the actor would scream out in pain as the test subject would increase intensity. Approx 50% of the test subjects tested would continue the shock treatment on the subject to the point of death.

This experiment is a classic example of what is wrong with evil corporations and crony executive leaderships. Test subjects or loyal sycophants will do anything, as long as they have the encouragement of the superior or authority figure.

For 10 years I was a participant in an industry that had an Enron style corporate culture. Regardless of what happened to clients, shareholders, and employees not in management, executives would continue to demand people stay the course. Executives, like Scott Klein the CEO of SuperMedia, had zero investment in the company. Employees who understand the business were told to “shut-up” and agree, accept, and fulfill the changes the new CEO was making. Regardless whether or not these changes are in the best interest of shareholders, employees, or the future of the organization.

Being a corporate leader requires the utmost ethical conscience, honesty, and fraud prevention and corporate crime policing.  Whistleblowers are to be respected and given a podium to speak from.

When the SEC began investigating Enron, Ken Lay reaffirmed traders and other employees that he and the company were frauded by “Andy” Fastow, yet the companies auditor Arthur Anderson was busy shredding evidence of wrongdoing. Ken Lay the Enron CEO shifted all responsibility to Andy, traders, the Government, and anyone else besides the executive leadership.

Jeffrey Skilling told employees to “invest your 401k” into Enron stock while he committed fraud. Skilling himself moved his money out of the stock. His Milgram Experiment was to keep influencing employees that what they were doing was right. Keep selling. Employees had faith in leadership. Leadership does not “fall on a knife” when corruption is discovered. When Scott Klein from Idearc met with employees, while being aware of his bankruptcy plans for the company, he assured employees and investors that the spin-off debt and stock arrangements were “strong.”

In Dallas, at a Fuller Drive meeting, Scott Klein the new CEO of Idearc Media reassured employees that the company was financially sound and had cash on the balance sheet few companies had. Instead of going into detail about the companies longterm plans, Scott Klein proceeded to pander to employees his “7 keys to success,”” a presentation better suited to High School kids.

Atleast, we now know how Mr. DeKlein likes his cocktails.

During the rise and fall of Enron, employees and investors were scammed for more than 20 billion. Just the same, Verizon scammed investors with Idearc stock, as well as FairPoint Communications and Hawaiian Telecom spin-offs. The fraud committed by Verizon, Idearc Executives, and SuperMedia’s CEO Scott Klein will be uncovered just like Enron in years to come.

I respect those who blow the whistle to protect the innocent. Those who are not in leadership or positions of influence. I respect the honest worker who gets up, turns on the pot of coffee and heads to work to do good. I respect the Good Guys, not those that put on a super cape and claim “Good Guy” status.

It is wrong to tell investors you have challenges with receivables yet turn around and increase the credit limitations to clients. It is wrong to tell investors good news while hiding the bad. This is manipulation and dishonest.

Milgram’s experiment emphasizes that leadership is ultimately responsible for corporate culture.

Leadership doesn’t get the axe. Take a look at the 545 folks who run this country. Do they get fired? They work for us voters, yet we can’t seem to fire them and they just blame the bad decisions on co-workers or subordinates.

It’s time to put your big boy britches on fellas. Grab your whistles, proxy statements and voting cards….. Make a CHANGE. It is in your hands. When people are crying out in pain, will you continue shocking them? Do you want the blood of the innocent on your hands? What will you do? I suggest it is time to grab and axe and start hacking away at the leadership team. Time for them to get fired!

(btw, I wonder why would an executive commit suicide? Enron’s executives did after the Justice Department began inquiring about illegal activities. Thousands of people faced with crimes go to prison or face social scrutiny, so why are white collar criminals so spineless that they become suicidal?)

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Verizon Idearc SuperMedia Stock Fraud Scam discovered. How bankers and executives pad pockets!

July 30, 2010

Verizon’s Idearc SuperMedia Stock Fraud Exposed

Verizon SuperMedia Stock Scam LogoHere 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.

and check this out: http://www.belltelretirees.org/images/stories/docket_29_-_supermedias_motion_to_dismiss_reply_brief.pdf

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


Verizon and J.P. Morgan Class Action Lawsuit for Investment Scam

April 17, 2010

The Latest Class Action suit for SCAM by Verizon & J.P. Morgan.

http://ping.fm/oKCcz

Well, I am sure you will see a few more regarding Paulson shorting Idearc then buying them up out of bankruptcy. Naked short sellers and hedge funds helped drive the company into bankruptcy (although it was pre-planned and Idearc never technically couldn’t afford debt payments.)  Paulson just got caught shorting a company he basically advised and guided. Wall Street bankers are getting bail outs. Goldman Sachs is in trouble and just got served a nice lawsuit. Paulson, who now owns over 17% equity in Verizon Yellow Pages publisher SuperMedia, is also “implicated” in the latest lawsuit regarding Goldman Sachs and investment fraud.

You run around with thieves and crooks…. that makes you a thief and a crook! Scott Klein is learning from the best crooked Wall Street bankers. Just take a look at his latest round of bonuses, stock options, and incentives for “emerging out of bankruptcy” that was created via fraud from Verizon and the same executive team that Scott Klein is now surrounded with. Here are a few more examples of golden parachutes.

Yet SuperMedia employees either agree with me and are labeled as “disgruntled” or are too damn stupid to see fraud when it is right in front of them. Or they are too damn scared to speak up!

visit the forum dedicated to ending the sales and executive fraud at SuperMedia for more discussion!


FairPoint phone company files for bankruptcy due to Verizon spin-off scheme.

October 26, 2009

FairPoint phone company files for bankruptcy, Thanks Verizon! – Yahoo! News

( http://ping.fm/K8AWU )

FairPoint Communication Phone Company is Bankrupt and files for Bankruptcy protection

We all knew it was going to happen. Verizon should be held accountable for actions related to bankruptcies of Idearc Media, FairPoint, and Hawaiian Telecom!

By CLARKE CANFIELD, Associated Press Writer Clarke Canfield, Associated Press Writer

PORTLAND, Maine – FairPoint Communications Inc. had its work cut out when it grew sixfold overnight by buying Verizon Communications’ land line and Internet operations in three New England states. But the nation’s credit crisis and a bungled technology transfer made the task virtually impossible.

With a battered financial sheet and a tattered reputation, FairPoint filed for Chapter 11 bankruptcy protection on Monday, barely 18 months after becoming the dominant telecommunications company in Maine, New Hampshire and Vermont.

The bankruptcy filing was widely anticipated and fulfilled critics’ predictions that FairPoint was taking on more than it could handle when it bought the Verizon properties for $2.3 billion.

But nobody’s taking satisfaction in saying, “I told you so.”

“What good does it do us? We can say it, but we’re left here to do deal with it,” said Pete McLaughlin of the International Brotherhood of Electrical Workers, which represents FairPoint employees.

FairPoint, based in Charlotte, N.C., owns and operates phone companies in 18 states with a total of 1.65 million lines. Its largest holdings are in Maine, New Hampshire and Vermont.

The company voluntarily filed for bankruptcy after agreeing on a deal with key lenders that would lower its debt from $2.7 billion to $1 billion and significantly cut its interest expenses, CEO David Hauser said. The plan is subject to approval by the U.S. Bankruptcy Court in the Southern District of New York.

Hauser said the filing will not affect the company’s day-to-day operations or its efforts to expand its high-speed Internet network in northern New England.

“From a customer point of view, this is a nonevent,” he said.

Monday’s filing prompted the New York Stock Exchange to suspend trading in the company’s stock. The company was notified last month that its stock could be removed from the exchange because the price had fallen below $1 a share for 30 consecutive trading days.

Regulators and politicians said they would look out for the interests of FairPoint’s customers and workers. The regulatory boards in Maine and New Hampshire said they have hired bankruptcy specialists to help during the process. Staff members from the three states’ regulatory boards planned to meet with FairPoint’s management and staff on Monday.

“The creditors seem to be taken care of, but that doesn’t mean the consumers’ interests have been protected,” said Maine Public Advocate Richard Davies, who represents consumers.

Besides negotiating with banks and bondholders to restructure its debt, FairPoint has been asking its nearly 3,000 union employees in the three-state region for concessions in a cost-cutting move.

Union leaders, meanwhile, said FairPoint’s problems were caused by “crushing debt and an organizational chaos,” not by its work force.

When FairPoint first proposed buying Verizon’s land line and Internet assets in northern New England, opponents said FairPoint was too small to take on such a large network. At the time, FairPoint had 975 employees and about 300,000 access lines nationwide; Verizon had more than 3,000 employees and 1.6 million access lines in northern New England alone.

Davies said two events are largely to blame for the company’s unraveling.

After the purchase was approved by regulators in Maine, New Hampshire and Vermont, but before the acquisition was completed on April 1, 2008, FairPoint was hobbled by the Wall Street financial crisis, he said. To finance the deal, the company planned to issue bonds paying 8.125 percent but instead had to issue bonds that paid 13.125 percent — causing its interest payments to soar.

When the company switched from Verizon’s computer systems to its own network last winter, it was plagued with customer-service, order-fulfillment and billing problems. Those problems caused costs to go up and its customer base to go down.

“Two factors that are major contributors to this weren’t known to regulators at the time the deal was approved,” he said. “Hindsight is a wonderful thing and if we’d known all these things back then I’m sure there would’ve been a different decision.”

Meredith Hatfield, New Hampshire’s consumer advocate, said the challenge now will be advocating for customers’ interests and getting FairPoint to follow through on its commitments.

“Obviously ratepayers and customers of FairPoint potentially have a lot to lose,” she said.

FairPoint said it has about $46 million of cash on hand. It said it received commitments for a $75 million debtor-in-possession revolving credit facility while in bankruptcy.


Idearc Execs Sued for Fraud via Dick Larkin at YP Commando

October 13, 2009

Idearc Execs Sued for Fraud

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Short and sweet: Scott Klein said that the company was having issues with collections due to a change from “the phone company” bill to Idearc direct billing. He also stated that they had issues with receivables in 2008 from relaxing the credit policy in 2007 (which I can confirm was something that was not disclosed to investors but only sales consultants.) Klein and his treasurer Dee Jones failed to mention the relaxed credit policies in 2007 after the switch from Verizon billing. This had a direct impact on bad debt. Klein violated securities and exchange rules by not disclosing the relaxed credit policies. The stock dropped 40% after he mentioned the decision he made in 2007 to relax credit policies.

Idearc CEO Scott Klein is not committed to the level of transparency that investors need to make proper decisions on whether investing in Idearc is beneficial to them. I have a feeling that he will not be with the company after a new investor takes over majority share of the company.

The companies executives failure to disclose information to investors does not surprise me. The company fails to discuss issues within the sales organization such as racial discrimination (Spanish Yellow Pages sales commissions in Texas) as well as racial discrimination by Scott Klein’s henchman Jesse Vickers who is black and targets folks that are “white.” It is well-known that these and other issues exist within the sales organization.

I believe that Idearc has a “way-to-heavy” amount middle management people in the way of fixing the company’s customer service issues. When a problem exists, instead of the problem going straight to the person responsible for resolving the issue, the problem is sugar-coated by middle management and the client is left with a bad taste in his/her mouth regarding the way the problem was resolved or lacktherof. Idearc fails to ask the right questions from sales reps and clients. Surveys do not work. Workers feel that survey responses may have a direct impact on employment. The environment in the organization has not been positive since the company has been in the hands of Klein and his cronies.

In my PERSONAL opinion, Scott Klein is just like Obama.  He says what he can to make you think the way he wants you to think, but his policies and acts do not mutually benefit Idearc’s clients, investors, or employees. How many of his announcements and promises made back in the February National Sales Meeting have he actually been successful and made improvements to the company? He is full of crap if you ask me.  The best he can do is create a new gimmick for sales consultants, advertisers, and consumers to be duped into believing is original. Klein copied ServiceMagic.com’s ServiceGuarantee and rebrand it the SuperGuarantee.


What do Idearc, FairPoint, and Hawaiian Telecom all have in common?

October 9, 2009

Here is an article that I have been biting my knuckles trying to keep quiet about.
WSJ Comments On Idearc Bankruptcy & Verizon Culpability : Natural Search Blog

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I read this article via a former employee of Idearc, one the Search Engine Marketing Industries most respected SEO consultants and who many believe to the the foremost experts on Local Search Marketing in the World, Chris Smith. Chris was formerly head of Idearc’s Search Engine Marketing team on the fella that helped put Superpages.com on the first page of Google. Chris did a tremendous job in the early day’s of local search beating other Internet Yellow Page Sites, such as YellowPages.com and Local.com (competing with keyword rich domains in the space is a challenge)

So the question is…. what do Idearc Media, FairPoint, and Hawaiian Telecom all have in common? They are all companies that Verizon spun off to fund Wireless and Fiber/TV/FIOS initiatives. Chris states, “Verizon might have some responsibility for the bankruptcies of Idearc, Hawaiian Telecom and FairPoint Communications”.

He also states:

In the case of Idearc, the business unit was too small to cause the great corporate mother ship to founder, and it’s the Verizon spin-off debt load it was saddled with that caused it to be unable to function in the first place. He misses the point that Verizon took too much money out of the spinoff deals. Those weren’t existing debts associated with those business units prior to their divestment.

These companies wouldn’t have “gone under” within Verizon. It’s possible that if a business unit starts to lose money for a quarter or two, the board would naturally require it to correct itself in some way.

I completely agree. I also think that the folks that worked for Ivan at Idearc at the time were over eager to accept whatever deal they could in order to be relieved of the burden of being under the Verizon direction. I don’t think it was smart of Kathy Harless and her team to take on such a debt burden…… seriously, over $9,000,000,000.00 for a company that has been losing its business to Google and Yellowbook and other competitors since 2001? It must have felt very confident on new product ideas such as Solutions at Home, Solutions Direct Mail, and Solutions on the Move! Nonetheless, the company would have never been able to create these new ideas and products under Verizon. Verizon used the Yellow Pages division as a cash cow to fund other ventures, then did it again when it unloaded debt on the smaller divisions.

I have a site that I am going to build: http://www.YellowCrooks.com, as I recently purchased the domain thanks to the idea from a former co-worker. He gave me the idea while being forced to watch an hour long rediculous “cocksure” video about sales, sales, and more sales. In my opinion sales was not the issue. The product offer and fulfillment was the major problem. (I have the credentials to state this since I was regarded as the most knowledgeable internet media consultant in the company {hey a FIGJAM moment for myself} and also have 3 President’s Awards for “Sales” in my 6.5 years in the division.) With the site I want folks to discuss what Verizon did. With all the transparency about Countrywide Mortgage and other recent events…. .why not?

Chris continues to state:

But, arguably these companies experienced a much higher degree of financial problems due to the extremely high debt they were required to service subsequent to spinoff. These spinoffs funded Verizon’s FiOS expansion — a gigantic project that was paid for by Verizon offloading the investment costs to the companies it spunoff.

It will be interesting to see if the Securities and Exchange Commission gives Verizon a pass on their spinoffs of bankrupt companies as Newmark seems to think reasonable, or if they don’t respond in some way to consumer and state government complaints.

In my opinion his comments are exactly why Idearc will have issues completing the bankruptcy. If I recall the company is going to come out with approx. 3 billion in debt when it emerges in Dec09/Jan10.

According to WebWire Press Release:

Idearc filed for voluntary chapter 11 bankruptcy in order to renegotiate its debt. Although Idearc was not technically bankrupt with over $500 million cash in the bank and net cash flow of $300 million per year, the weak economy spurred creditors into lowering the outstanding debt from $9 billion down to $3 billion along with more flexible payment terms. One of the terms is that Idearc give anything over $150 million in their bank account to creditors in order to pay down the $3 billion in debt. Essentially, Idearc will always have $150 million in the bank and anything over that will be taken out to pay down debt. Idearc’s 3 billion dollar debt has a note rate of 12%, the annual debt service is $360 million dollars, about 12.1% of 2008 gross annual revenue. The creditors/lenders have already approved the reduction in debt. The company is now waiting for approval from its board and the bankruptcy judge. According to the new deal, Idearc must give the creditors $250 million from its cash reserves as a sign of good faith. This will put Idearc’s cash position at approximately $250 million after the deal is completed

I hope the folks at the Downtown Courthouse in Dallas are taking all this into account! I know the counsel for the unsecured creditors is sure going to put pressure on fiduciary responsibility of Verizon. But in my opinion (or should I say prediction is) Verizon will probably buy Idearc back in some Bernie Madoff type crony deal and leave shareholders with pocket lint. Why? Because this is America! Heck, Verizon offered a separations package to folks that left the company and put it in writing that folks would not be hired back, yet these folks were later rehired after taking the Voluntary Separation Package with very nice severance packages. Do I blame the cocksure guy from Pepsi? Nope! Not for the burden. But it kinda makes me think of folks saying that Obama is not to blame for Bush’s choices. Well….. that might not be a good example…. or might just be?? Obama’s choice to put my kids in debt with the “Spendulus Plan” and Bail Outs might compare to turning “America’s local ad agencies” into a telemarketing service or abandon the internet business in favor of trying to keep the print alive. Honestly I have heard rumors (like I said!!! RUMOR!!!) about Idearc not wanting to stick with the .com product it offers since all it can muster is riding the coattails of Google and Yahoo in search. Margins in print make it easy to have 3000 “sales” reps. The smaller margins in .com might move the company towards that of a Media Buying Ad Agency and the company might follow in Google’s self automated pricing structure. Why should prices of ads be so darn “negotiable”?

I’d go a bit further and also agree with Chris and state “that if it looks like a rat and smells like a rat, it’s a rat”.

In the meantime….. y’all wish me luck….. I am hoping to start a company doing what I do best……

HELPING DALLAS AREA BUSINESS OWNERS REACH THE TOP OF GOOGLE AND MAKE MONEY!

Oh, yeah…. I think I am going to offer to create PPC campaigns for FREE and not charge a management fee or have you sign a contract…. Might be the wave of the future. Call me for details. FREE Google PPC Campaigns are subject to me providing my SEO services. Although technically I am not in business… maybe I can show folks how profitable SEO can be!