Case Alleged CEO Fixed the Books, Looted Company Funds
By Patrick Cronin
Hampton Union, Tuesday, March 24, 2009
[The following article is courtesy of the Hampton Union and Seacoast Online.]
HAMPTON -- Creditors of Foss Manufacturing have settled a suit against the company's former Chief Executive Officer Stephen Foss and others the group alleges looted the company as it was going bankrupt.
The terms of the settlement finalized on Feb. 24, are confidential and were not disclosed in federal court. However, according to a report filed by the trustee of the bankrupt business, the estate gained $8.6 million from settling this case, as well as one against the company's former auditing firm.
The company filed for bankruptcy in September 2005 after its chief lender, CapitalSource Finance, cut off credit alleging the company fraudulently borrowed millions of dollars to benefit itself and company insiders.
Creditors filed their suit a year later against Stephen Foss and other former executives to collect money not repaid as part of bankruptcy proceedings.
In all, more than $50 million in claims were made against Foss Manufacturing, but the company was sold in 2006 while in bankruptcy proceedings for less than $35 million.
The creditors' suit alleged, among other things, that Stephen Foss used company money as his own "personal piggy bank."
It accused the former CEO and Pease Development Authority board chairman of spending millions of dollars of the firm's money on personal and family expenses, such as improvements to family homes and club memberships at more than a dozen private clubs in Bermuda, New York and Florida.
According to the complaint, Foss Manufacturing had been on the brink of bankruptcy for several years, but remained afloat by misrepresenting its condition and falsifying financial information.
Creditors alleged Stephen Foss enlisted Kevin Sexton, the former chief financial officer, and Marcella Darling, former head of the technology department, to change the financial records in order to give the appearance the company was doing better than it really was.
It also alleged the board of directors, including Stephen Foss' wife, Patricia, and his daughter, Jenifer Smyth, failed to live up to its fiduciary responsibilities of keeping a watchful eye over the company.
The suit claims they should have been aware of what was going on, especially after Sexton resigned.
At the time, Sexton allegedly sent the directors an e-mail in March 2005, stating he was asked on numerous occasions to do "unprofessional, unethical and other things to protect the Foss family."