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Ex-Omnicity CEO blames bank for bankruptcy filing

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The former CEO of Omnicity Inc. is alleging the wireless broadband company’s bankruptcy was triggered when its bank froze the wrong account.

Greg Jarman’s lawsuit against BMO Harris Bank, now pending in federal court in Indianapolis, may be a long shot, however. Omnicity hemorrhaged money for years prior to the bankruptcy. In 2010, it issued a “going concern” warning, then filed for Chapter 11 reorganization the following year .

The Rushville company also has been subject of numerous lawsuits from owners of other wireless companies it acquired over the years, who allege they’re owed about $1.2 million.

An Ohio firm alleging it was owed $137,737 sued Omnicity in federal court, which in 2011 ordered that Omnicity Corp. accounts be frozen. Omnicity Corp. was the sole shareholder of Omnicity Inc., which at one time had 12,000 customers in rural areas of Indiana and Ohio.

In his complaint, filed in late September, Jarman alleges that BMO Harris instead froze the account of Omnicity Inc., which caused the company to miss a lease payment to a financing and consulting firm.  

Jarman was a guarantor of the lease and alleges he suffered unspecified damages. The account freeze created a liquidity crisis and scuttled plans by a major investor to make a cash injection into the company, Jarman’s suit contends.

“That cash injection would have prevented Omnicity Inc. from going into bankruptcy," the suit says. "Accordingly, Omnicity Inc.’s bankruptcy arose entirely from the problems caused by the (bank’s) wrongful freeze."

Jarman and Omnicity allege negligence and breach of contract, and seek unspecified damages in the suit originally filed in Rush County Court. The suit was transferred to federal court Oct. 29.

“The claims made against BMO Harris Bank have no merit and we strongly deny the allegations in the complaint,” said Jim Kappel, a vice president and spokesman for BMO.

BMO may have made it more difficult for Rush County resident Jarman to win the case by filing to move it to federal court.

Veteran bankruptcy attorney Henry Efroymson of Indianapolis-based Ice Miller LLP said it’s not unheard of for a debtor to argue that a bank contributed to its bankruptcy by freezing its accounts.

But, he noted, banks may have a right to freeze an account in the event a debtor is at the point of default.

Omnicity remains in Chapter 11, although late last year it was acquired for $876,000 by four former cable TV executives, including Buzz Nesbit, Mike Sellers and Jeff King.

The successor—Broadband Networks—said it has made new investments in Omnicity’s network of 270 wireless Internet towers in Indiana and Ohio. Jarman is the new company’s managing director of technology.

And, now, it appears Broadband Networks is looking for new equity partners and possibly even a buyer. California-based Heritage Global Partners has been placing ads seeking an “acquisition opportunity” involving Broadband Networks

“Our firm has been engaged to seek a buyer for Broadband Networks Wireless Internet,” it states. “Our client seeks a timely transaction with an operating entity for whom this subscriber base can improve economies of scale.”

Meanwhile, Indiana securities regulators are looking into allegations by a then-19-year old who invested $100,000 of his inheritance in Omnicity. He allegedly was told the investment would help the company cinch the purchase of an Ohio carrier in 2010.

Tanner Byall alleges three Omnicity principals, including Jarman, offered him an opportunity to invest in a note that could be redeemed at the end of two years, or converted to Omnicity stock at 35 cents a share.

The Indiana Securities Division seeks a return of Byall’s investment, plus $28,000 in tax reimbursement for cashing out his 401(k) and 8 percent interest.

Unsecured creditors of Omnicity claimed they’re owed up to $3.9 million.

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