Aug. 8, 2006 — The fact that Jeffrey Prosser and two of his companies are seeking bankruptcy protection in the federal courts has not prevented his adversaries from filing yet another multimillion dollar suit against a third Prosser company — this time in the Southern District of New York.
The suit was filed July 25 in U.S. District Court on behalf of most of the investors who bought $85 million in preferred stock in Vitelco, the V.I. phone company. This is the second suit filed by the preferred shareholders.
The latest suit has been filed against Innovative Communication Corp. — which is not to be confused with Innovative Communication Co. LCC [Limited Liability Company]– though both are wholly owned by Prosser, as is Emerging Communications Inc.
Innovative Communication Co., LLC, and Emerging are protected, for the moment, from creditors by the voluntary bankruptcy filing in the Virgin Islands, but Innovative Communication Corp. — which is the parent company of Vitelco, also known as Innovative Telephone — is not, according to David Rosner of Kasowitz, Benson, Torres and Friedman, the firm that represents the preferred shareholders in the suit (See "More Data Emerges on ICC-LLC Bankruptcy – But Questions Remain").
In the most recent suit, the preferred shareholders contend: "Defendant ICC's conduct was outrageous, demonstrated fraudulent and evil motive and was in such conscious disregard of the rights of [the shareholders] to be deemed willful and wanton."
The shareholders objected to ICC-LLC/Emerging's investment of $64 million in a Prosser venture in Belize (where he sought to buy the local phone company) without first securing the consent of two-thirds of the shareholders, as the preferred stock agreement stipulated. The V.I. Public Services Commission attempted in August 2004 to thwart ICC's efforts to use the stock proceeds to purchase the Belize phone company. The commissioners voted to order Vitelco to not spend any more of the stock proceeds on the Belize acquisition. (See "Stop Spending Stock Proceeds, Phone Company Told").
At that point it appeared that about $27.5 million of the preferred stock issuance had already been sent to Belize. A month later, Vitelco President David Sharp told commissioners the "loan" to the Belize project was a sound investment that would be paid back at 10 percent interest by November 2004.
The preferred shareholders are also unhappy about a $3.2 million lien filed against Vitelco by the U.S. Pension Benefit Guaranty Corp., a federal agency, because of the phone company's failure to pay into its union employees' pension plans for at least a year, again without the shareholders' consent or knowledge (See "Federal Agency Files Liens Against ICC Companies").
With these events in mind, the shareholders are suing ICC for $71.5 million in damages for "unjust enrichment" at the expense of the stockholders. The shareholders are also suing on behalf of Vitelco to get ICC to return $67.2 million to the phone company. Apparently the restoration of the full $67.2 million to Vitelco would substantially reduce the other claim.
The most recent suit by the preferred shareholders seeks the payment of damages and the restoration of funds to Vitelco, while an earlier suit by the preferred shareholders had sought rapid repayment of the $85 million that they had invested in Vitelco (See "Vitelco, ICC and Prosser Have Mixed Week in Court"). The earlier suit has, in effect, been placed on hold because of the bankruptcy proceedings, but the more recent one, apparently, could proceed outside the bankruptcy setting.
The preferred shareholders have also filed in the U.S. Bankruptcy Court in Delaware to break the court-approved secrecy of the earlier (and now broken) agreement between the Prosser forces, on the one hand, and two other sets of investors, on the other. The last named group consists of the Greenlight companies, representing the former minority shareholders in Emerging Communications, and the Virginia-based Rural Telephone Finance Cooperative (RTFC), Prosser's longtime bankers.
This means that Prosser and his people are now waging three separate sets of court battles: with the Greenlight/RTFC team; with the preferred shareholders; and with the nation of Belize. While Greenlight/RTFC and the preferred shareholders seek hundreds of millions from the Prosser interests, Prosser seeks $200 million from Belize in courtrooms in Belize; Atlanta, Ga.; and Toronto, Canada.
Two hundred million is also the rounded figure used by the preferred shareholders as an estimate of Prosser's personal debts, a figure that has not been seen in print before. The preferred shareholders use what they call a conservative estimate of $400 million for the debts of Prosser's companies. Both of these numbers can be found in the latest of the preferred shareholders' filings in the Southern District of New York. The preferred shareholders have made no public estimates of the extent of the assets controlled by Prosser and by his companies.
ICC's response to the preferred shareholders' suit will be reported by the Source when it becomes available.
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