Durham insider deal sparks outcry

Back to TopCommentsE-mailPrintBookmark and Share
Greg Andrews
Tim Durham is facing allegations of self-dealing after a publicly traded company he helps run in Dallas acquired assets from a finance company he owns in Ohio.

The Dallas firm, CLST Holdings Inc., disclosed in a regulatory filing March 2 that one of its directors, Manoj Rajegowda, resigned last month. A letter Rajegowda's attorney sent the company said he "was not informed of this transaction and most strenuously objects to it."

Also on March 2, CLST shareholders owning more than one-quarter of the company's stock sued CEO Robert Kaiser and the other remaining directors, Durham and David Tornek, alleging self-dealing, breach of fiduciary duty, waste of corporate assets, and unjust enrichment.

Durham, 46, an Indianapolis businessman, did not return calls, but Kaiser called the suit "frivolous" and defended his and other directors' stewardship of the business.

CLST was a cell-phone distributor known as CellStar Corp. until about two years ago, when the company sold off its business units to several buyers, including locally based Brightpoint Inc. Soon thereafter, Durham won election to the board, in part by pledging to dissolve the company quickly and distribute remaining cash to shareholders.

Since then, the Dallas company has made two distributions to investors and cut its work force to three. But it hasn't taken concrete action to dissolve. And it now says in regulatory filings that the board is evaluating "strategic alternatives" and might conclude shutting down is the wrong course.

That CLST was lingering on had stirred unrest among shareholders, in part because Kaiser continues to collect a $240,000 annual salary, and directors have received grants of hundreds of thousands of shares of restricted stock.

But what set them off — and took them by surprise — were recent regulatory disclosures that CLST has acquired receivables — such as installment sales contracts from home-improvement stores — in three separate transactions for tens of million of dollars, much of it borrowed. The last deal, cut in February, was a $3.6 million purchase of receivables from Akron, Ohio-based Fair Finance Co. — which Durham co-owns. Shares issued as part of the purchase price boosted his ownership stake in CLST from 5 percent to 15 percent.

A March 2 CLST regulatory filing says the company received an opinion from Texas-based Business Valuation Advisors that the terms of the deal with Durham's company were fair to other shareholders. But some other current and former shareholders are unswayed, in part because CLST hasn't disclosed enough information about the Fair receivables for them to make their own assessment.

"How much was paid for these receivables when Fair Finance bought them?" asked Erich Riesenberg, an Iowa investment adviser who recently sold his shares. "Did Fair Finance make a big profit on them? That is the number one question."

Riesenberg added: "This company is supposed to be in liquidation. The fact they are buying receivables, period, is very strange."

New York-based Red Oak Partners, the lead plaintiff in the shareholder lawsuit, said in court papers that instead of winding down the business, the remaining directors are "engaged in an elaborate scheme to line their own pockets."

But Kaiser, 55, the company's CEO and chairman, said critics have failed to recognize the time and complexities involved in shutting down a business with operations scattered around the globe.

Kaiser said CLST has been able to add millions to its coffers by collecting on accounts that had been written off, as well as resolving tax claims and business disputes in a favorable way. Other matters remain open, such as an indemnification agreement in Sweden that expires later this year.

"Obviously, what Red Oak does not understand is you can't all of a sudden push a button and dissolve a company," he said.

Kaiser said that back when shareholders approved the liquidation, management wasn't aware of the tax benefits the company could garner by remaining an operating business. Because CellStar struggled in its final years, it racked up $125 million in "tax loss carry-forwards," which can be used to offset taxes until 2020.

Kaiser said buying the receivables should generate a good investment return. And he said the foray into receivables doesn't box CLST into remaining in business, since it could turn around and sell them again.

"With cash earning less than 1 percent, some of these other portfolios will prove to be more valuable than holding cash," he said.

But Rajegowda, 28, the director who resigned, thinks the board is plotting to stay in business, even though that is "antithetical to the expressed wishes of the majority of stockholders," according to the resignation letter from his attorney.

He also is smarting because the full board didn't have the opportunity to vote on the Fair Finance purchase. In a regulatory filing, CLST acknowledges as much but says excluding Rajegowda was justified because other members of the board had become concerned he was sharing confidential information with his employer, the hedge fund MC Investment Partners.

According to a CLST regulatory filing, the three other board members cut him out of the picture by creating an executive committee composed of only them and giving it the same powers as the full board.

On Feb. 3, the full board voted 3-1 to form the new panel, with Rajegowda casting the dissenting vote. Ten days later, CLST purchased the Fair Finance receivables.


Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. Yes sir keep cashing those 300K a year checks direct to IMS, while millions disappear from the teams like Rahal's. Guess there wasn't enough ka- ching going around to keep Sarah Fisher in business without their "merger". LOL._____.Meanwhile back in Realville the series with the "best racing in the world" drew what appeared to be about 5000 live spectators ( and probably 1500 of those Target "freebies", and was beaten in the ratings by a series that reportedly consists of "parades" and aired while most people are still sleeping. That will generate those big ka-chings for sure. :-). But, hey, as long as the Speedway gets the cash who gives a damn about the teams?

  2. Welcome to PETERSON LOAN AGENCY Company (A Personalized Service for All Your Financial Needs) We, Liberal Investment Company Providers offers loan at a very low interest rate of 2%, we offer Personal loans, Debt Consolidation Loan, Venture Capital, Business Loan, Educational Loan, Home Loan, and Loan for any reason and urgent needs!. with a maximum duration of 30 years. Have you been turned down by your bank? Do you have bad credit? Do you have unpaid bills? Are you in debt? Do you need to set up a business? Worry no more as we are here to offer you a low interest loan. Our loan ranges from $5,000-USD (Five Thousand US dollars) to $50, 000,000.00.(Fifty Million US dollars). We also lend in USA DOLLARS EURO and POUNDS ! Fill in this form and forward it to our email: PETERSONLOANAGENCY@GMAIL.COM 1. Your Full names:_______ 2. Contact address:_______ 3. Country Of Residence:______ 4. Loan Amount Required:________ 5. Duration:_____ 6. Gender:_____ 7. Occupation:________ 8. Monthly Income:_______ 9. Date Of Birth:________ 10.Telephone Number:________ 11. Purpose of loan:_________ Yours In Service, MR PERRY, PETERSONLOANAGENCY@GMAIL.COM

  3. If I could actually get the prices...I would do this on my own. We need laws that force provides to publish the costs they will charge. Everyone else gives you the price in advance...except hospitals.

  4. I was under the impression that fencing is not allowed on a front yard and that on a corner, both sides are considered "front" yards, therefore can't be fenced without a variance. Also impedes the visibility for drivers at the intersection. Am I understanding this correctly? Might be why a fence was not included in the plans and a request for a variance will have to be made?.

  5. I was a big fan of Cowards and Carrots, which I got a chance to see at the show. It's currently on Kickstarter, but the designer also put out What's He Building in There last year, which got a fair amount of buzz.