On Thin Ice

On Thin Ice

Copyright 2002, Traffic World Magazine

The majority owner of a freight payment firm borrowed $10 million in shippers' deposits from the corporation to buy a partial interest in the New Jersey Devils of the National Hockey League (see story on page 15). That's just the latest revelation about corrupt management of several freight payment and auditing firms that have gone bankrupt in the last year.

Shippers have lost at least $45 million this year in the bankruptcies of Strategic Technologies Inc. and Computrex Inc. It's too early to count shippers' losses in the STI case, but a single company, ATOFINA Petrochemicals, is out $9.7 million. In both bankruptcies, shippers will get some money back once all the assets liquidated. In the Computrex case, there will be about $5 million to distribute among creditors that are owed $25 million.

A third freight payment bureau, United Traffic Management Systems of Irving, Texas, closed its doors in February owing $3.2 million to four shippers but did not file for bankruptcy. At STI, there's no accounting yet of either liabilities or assets. One lawyer involved in the case estimated its liabilities at more than $20 million and another said somewhere between $3 million and $100 million. There should be at least $10 million in assets to divide, assuming there is a buyer for a percentage of the Devils.

At the two bankrupt firms, executives consciously misused shippers' money, money that should have been kept in segregated, dedicated accounts. At Computrex, shippers' funds were used to invest in a software company that went belly-up, acquire an unprofitable third-party logistics company and make loans to company insiders, including some that were never repaid.

Computrex executives also bought Cardinal Logistics of Louisville, Ky., merged the two companies and used Computrex's shipper deposits to operate the third-party logistics company. When Computrex liabilities reached a peak last year, the company's owners split off Computrex Inc. and put it in bankruptcy, but not before they took another $800,000 in assets to benefit Computrex Logistics, another spun-off firm that is still in business. Eventually Computrex Logistics agreed to pay back a discounted amount of $700,000, but as of last week had failed to do so.

A good chunk of the money that is missing from STI was spent on the ultimate rich man's toy, a professional sports franchise. STI's bankruptcy attorney quotes principal owner Marc G. Cooper as saying that he never intended that $10 million dalliance in the National Hockey League to be "his own personal asset. As I understand it they had some available dollars that looked like a good investment."

Neither Cooper nor his personal attorney could be reached for comment. But a shipper's lawyer has noted that that piece of the Devils was in Cooper's name, not STI's. And if STI's customers' complaints about forged financial documents and lies about STI's financial condition can be proved, there is much more evidence of fraud. One shipper has accused STI and its executives of a broad range of misconduct and civil claims, including fraud, conversion of funds, breach of fiduciary duty, unjust enrichment, negligent misrepresentation, conspiracy and breach of contract.

If these shippers' allegations can be proven, the bankruptcy trustee in the case should request a criminal investigation of STI executives. If an investigation is launched, I predict they will find there are Devils in the details. The Computrex Inc. trustee has an in-depth probe of the company's actions under way and has pledged to bring in law enforcement authorities if the investigation warrants. Without tough action by prosecutors, shippers will continue to take it on the chin. As in the better-known Enron corruption case, holding corrupt executives criminally responsible for corporate fraud is long overdue.