Fists, lawsuits fly in Fareport scandal !****************************************************
A refresher for all those new to V. CAB - ENJOY !
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A Toronto taxi company is embroiled in a messy scandal that includes allegations of stolen money, a hidden bank account, funding for a porn website and suggestions "about people wearing cement shoes."
Things have gotten so bad at Fareport Capital Inc. that the chief executive officer was allegedly punched in the face by an executive he'd just fired and lawsuits are flying involving more than 40 people and entities. Now, the Ontario Securities Commission has been called in to investigate along with the Investment Dealers Association of Canada, the self-regulating agency for country's brokerages.
"I wish we didn't have this situation but unfortunately we've got to deal with it," CEO Lou Elmaleh said.
Fareport, which trades on the TSX Venture Exchange, operates several car services including Crown Taxi.
This week, the company filed a lawsuit against dozens of former company officials including founder Robert Donaldson along with his father, wife and two children. The suit alleged a group of officials has stolen at least $8-million from Fareport. "This claim is based on seven years of fraudulent and negligent activities and misrepresentations perpetrated by the former management of Fareport, insiders of Fareport and associates of these insiders and members of management," the suit alleged.
Mr. Donaldson and the others vigorously deny the allegations. "The facts are inaccurate, the allegations are spurious and we intend to defend them," said his lawyer, Symon Zucker. Mr. Donaldson had shot back with a lawsuit against the firm that alleged Mr. Elmaleh has concocted the scandal in order to take control of the business. Mr. Elmaleh denied that.
Fareport has struggled financially for years in Toronto's intensely competitive taxi market. It lost $1.6-million last year on revenue of $8.3-million. Its shares trade at 4 cents.
Mr. Donaldson, a former cab driver and stockbroker, created Fareport in 1997 and took it public a year later. Along with taxi services, the company provides financing to cabbies to buy their cars. But according to court documents, raising money has been a constant struggle and Fareport almost ran out of cash this year.
Mr. Elmaleh was appointed CEO in late 2003 at the request of a major investor. In the firm's lawsuit, he alleged that he first suspected something was wrong in late 2004 when he realized that company invoices were being diverted from his attention.
He launched an internal review and discovered that Fareport was allegedly paying the operating costs for a rival taxi company, called Rapid City, that is run by Mr. Donaldson and several others, according to the lawsuit. Fareport allegedly sold Rapid City to Mr. Donaldson's business in 2002 for $100,000 even though it was profitable and had $900,000 in annual revenue. Mr. Elmaleh alleged that after the sale, Fareport continued to cover Rapid City's operating costs, cancelled $120,000 in debt and gave it cars.
Fareport also allegedly paid for several "consultants" who were connected to businesses run by Mr. Donaldson and other insiders, the lawsuit said. For example, Fareport allegedly paid $500,000 to a company linked to Mr. Donaldson for driver training but "no services of any substance were ever provided." He also allegedly arranged for the company to invest in a pornographic website, called Digital Rooster, that was operated by another insider. The investment was improper and not approved by the board, the suit claimed.
According to the lawsuit, Mr. Donaldson and another executive allegedly bypassed Fareport's accounting system and made regular payments to themselves and others. Those payments included money transfers to banks in Russia and Switzerland, the suit alleged. Mr. Donaldson also had access to a Fareport bank account that was hidden from the company's board, the suit alleged.
On Feb. 15, 2005, Mr. Elmaleh fired Mr. Donaldson and chief operating officer Nikolai Choumakevitch and changed the locks. The lawsuit alleged that Mr. Choumakevitch snuck into the office a few days later and was confronted by Mr. Elmaleh. Mr. Choumakevitch allegedly punched Mr. Elmaleh in the face and ran off with stacks of files. Mr. Elmaleh called the police and pressed charges. Mr. Donaldson's lawyer, Mr. Zucker, said the charges were dropped.
Since the dismissals, Fareport said it will restate its financial results and it has cancelled $900,000 worth of debentures. Some were allegedly issued to Mr. Donaldson and others at little or no cost, and carried interest rates of up to 30 per cent.
In his lawsuit, Mr. Donaldson denied any wrongdoing. He alleged that there was full disclosure about the Rapid City transaction and that he did not benefit from the sale. He said Mr. Elmaleh has run the business into the ground and is now trying to blame others. And he alleged Mr. Elmaleh intimidated others with threats of violence and "by making comments about people wearing cement shoes."
In an interview, Mr. Elmaleh denied the allegations and said Fareport's finances have improved in recent months. "There has been a lot of turmoil, but the company is in decent financial shape now," he said.
From the Globe & Mail dated July 22, 2005