Former insiders of One Call Communications appear to be targets of a Justice Department criminal inquiry, according to a filing by the defunct company's court-appointed receiver.
Pittsburgh-based Meridian Group said it was served a subpoena Sept. 19 from the U.S. Attorney for the Western District of Pennsylvania to testify before a grand jury Oct. 21 on matters involving One Call.
Court-appointed receiver Meridian made the disclosure in a filing this month with U.S. District Court in Indianapolis, where last year it filed suit against officers and directors of One Call, a long-distance telephone services firm that employed hundreds at its Carmel headquarters before collapsing in 2006.
Meridian has alleged inside dealing by One Call officers and is attempting to recover tens of millions of dollars loaned to One Call by Pittsburgh-based PNC Bank.
One Call's former officers deny the charges.
The suit also alleges negligence by directors for not investigating concerns brought to their attention by the communications firm's chief financial officer. Months before One Call's collapse, the former CFO told the board he was concerned about "ever increasing" payments made to affiliates in which he suspected some officers and employees held ownership interests.
Among defendants in Meridian's suit are ex-CEO Joseph Pence and former board Chairman Ramon Humke, who is better known as former president of Indianapolis Power & Light and, before that, Indiana Bell.
But in its Sept. 21 filing in U.S. District Court in Indianapolis, Meridian is vague as to just who is under grand jury scrutiny, noting criminal penalties for releasing such information.
"Upon information and belief, the subpoena and grand jury proceeding relate to a federal criminal investigation targeting certain named defendants in this litigation," Meridian told the court Sept. 21.
Observers say it's no coincidence the grand jury is being convened in western Pennsylvania, home of PNC Bank.
When One Call folded, it left PNC on the hook for more than $19 million. PNC was One Call's biggest creditor.
Last April, in a lawsuit filed in U.S. District Court in Indianapolis, PNC alleged One Call's top officers committed fraud against a federally chartered financial institution.
Greg A. Small, an attorney at Krieg DeVault LLP representing Meridian, declined to comment on the federal inquiry.
Meridian brought its case against six One Call insiders in July 2007. In addition to CEO Pence and board chairman Humke, the suit named officers Ann C. Bernard and Brad Benge and Director Larry S. Wechter.
Wechter heads Indianapolis-based Monument Advisors, a private equity firm that led management's efforts to buy One Call--also known as OCMC--from Evansville resident Larry Dunigan in 2002.
"Mr. Wechter has not received a subpoena from any federal or state law enforcement officials relating to OCMC. We have no knowledge of Mr. Wechter being the target of any investigation by any state or federal law enforcement officials," said Richard Blaiklock, of Indianapolis law firm Lewis Wagner LLP, which represents Wechter.
Ditto for Humke.
"Mr. Humke has not received any subpoena relative to OCMC Inc., and neither Ray Humke nor Ice Miller has any knowledge that Mr. Humke is the target of or in any way implicated in any investigation by any state or federal officials," said Michael A. Wukmer, an attorney for Indianapolis law firm Ice Miller LLP.
Pence could not be reached for comment.
Bernard, reached at her home in Carmel, deferred to her attorney.
But that attorney, Jeffrey Gaither of Bose McKinney & Evans, a day earlier filed a motion in U.S. District Court to withdraw his firm's representation of Bernard, Pence and other former One Call managers in the case brought by Meridian.
Bose McKinney attorneys "have recently learned of a conflict of interest in their continued representation of defendants," Gaither wrote, without elaborating.
Gaither did not respond to inquiries from IBJ.
Legal lens widens
What is clear is that the effort by Meridian to uncover assets of One Call and former insiders on behalf of PNC Bank is broadening.
In May, Meridian and its legal team from Krieg DeVault filed an amended complaint that named four additional One Call employees as defendants.
Also added were eight telecom entities, including Las Vegas-based Navicomm LLC, in which Meridian says some ex-officers had financial interests.
In its federal lawsuit here, Meridian alleges that Navicomm was created so One Call could run an "adult content" business through a separate entity "to shield OCMC and its investors from the negative connotation" associated with adult content businesses.
Meridian alleges that Navicomm was to have received a nominal fee from One Call but instead drew substantial payments from the Carmel company that Navicomm then passed through to former One Call officers and employees.
Each "received hundreds of thousands of dollars," yet "the conduct surrounding the Navicomm business was ruinous" to One Call, Meridian alleges.
The so-called related party transactions became a concern to One Call's then-chief financial officer, Lester K. Li.
Li engaged Houston law firm Fulbright & Jaworski LLP, which in February 2006 sent a letter to One Call Board Chairman Humke.
"There has been mounting concern in OCMC's accounting department about the ever-increasing payments being made to Navicomm and its affiliated entities," a Fulbright attorney wrote to Humke.
Li, who received his MBA from Indiana University in 1988, initially believed Navicomm had been created to provide a regulatory buffer of sorts. But Fulbright said the entity appeared to have little or no overhead and was operating out of a storefront location.
"Its 'buffer' service was originally compensated at a rate approximating 3 percent of OCMC's gross revenues. That percentage has now escalated to nearly 10 percent," Fulbright attorney Richard Carrell told Humke.
"We understand that as of [December 2005] Navicomm has been paid in excess of $30 million, including nearly $3 million in profit."
Moreover, Carrell suggested One Call's audit committee "investigate promptly" whether payments to Navicomm constituted an improper diversion of funds. He also said accounting issues involving Navicomm and its affiliates might raise issues with PNC Bank regarding its loan agreements with One Call.
"Our client," Carrell wrote of Li, "cannot authorize further payments to Navicomm. Quite simply, while there may be satisfactory explanations, our client cannot disregard the known facts to make further payments under the existing circumstances."
Carrell assured Humke that Li "understands the potential gravity of these issues. He is upset and concerned. Nevertheless he takes his fiduciary duties to the company very seriously .... We trust you will be mindful of his welfare."
But Meridian said One Call CEO Pence summarily terminated Li, with the endorsement of the board.
Attorneys for former officers and directors have contested the allegations from PNC and Meridian. Attorneys for several of the former officers flatly deny allegations of self-dealing.
Moreover, they've argued in numerous responses to the Meridian and PNC lawsuits that allegations are vague and unsupported.
"There is not one single fact that supports the allegations that Humke or Wechter failed to meet the statutory standard of care or failed to fulfill their duties in good faith," their attorneys argued late last year.
They filed a motion to dismiss the suits on several grounds, including what they say is Meridian's lack of standing to pursue PNC's claims against Humke and Wechter. They argue that, as a corporate creditor, PNC doesn't have personal cause against a director for alleged breach of fiduciary duty.
They've also questioned Meridian's handling of One Call's assets and say Monument Advisors lost its $3 million investment in One Call.
Through Meridian, "PNC is trying to indirectly do that which it is not legally entitled to do directly--sue the directors of OCMC for breach of directors' fiduciary duties," Blaiklock told the court in July.
"This case should be analyzed in the context of what it really is: PNC's attempt to collect a corporate debt directly from the directors."
Attorneys for Humke and Wechter contend that Meridian's lawsuit has hurt their ability to conduct their own businesses.
Before its 2006 collapse, One Call's biggest court battles involved telecom regulators.
Iowa and Missouri regulators once accused the company of putting bogus charges on phone bills and then harassing consumers to pay.