Taxpayer stimulus waster A123 Systems has not only declared financial bankruptcy – its executives also seem to be driving toward moral bankruptcy as well.
CEO David Vieau and his lieutenants, after receiving well over $279 million in Recovery Act funds and at least $135 million from Michigan taxpayers, have run the company into the ground. Yet they have asked a bankruptcy court judge for his blessing to receive up to $4.2 million in executive and retention bonuses to see through the company’s takeover, likely by Johnson Controls.
NLPC detailed the self-serving nature of A123’s leadership in February. At the time A123 had laid off 125 employees in November at its two plants in Livonia and Romulus, Mich. Company officials said diminished production by A123’s top customer, Fisker Automotive, led to the cutbacks. A123 had expected to deliver batteries for 7,000 plug-in hybrid Fisker Karma models, but faulty wire harnesses in the vehicles reduced Fisker’s production to 1,500 for 2011. Also, in December A123 had to repair dozens of its batteries that had been installed in Karmas due to the potential for coolant leaks. At the time Wall Street analysts and Forbes magazine posited that A123 faced a “doomsday scenario” and that together with Fisker they might constitute “two Solyndras for the price of one,” since the Department of Energy put an end to its $529 million loan guarantee for Fisker.
Yet despite those failures and blunders (with many more to come), company directors on February 8th awarded top executives big salary increases despite a steep downward trajectory in its stock price after DOE cut Fisker off. Chief Financial Officer David Prystash was bumped 27 percent to $380,000; VP of Energy Solutions Robert Johnson’s base salary increased 51 percent from his 2010 level to $400,000; and VP of Automotive Systems Jason Forcier saw his pay rise 32 percent from 2010, to $350,000. Prystash had just been hired in May 2011 at a base salary of $300,000 plus a $50,000 signing bonus.
Worse – which may represent at least part of the $4.2 million that the executives now seek – Vieau saw his compensation boosted by 400,000 additional restricted stock units. Four other top A123 executives, including Johnson and Prystash, collectively received 810,000 of the stock units. An SEC filing said the stock would fully vest “in the event the company consummates a ‘change of control’ transaction.”
A123’s compensation committee of its Board of Directors also changed remuneration terms of its top officers should control of the company change hands, which included:
· Accelerated vesting of unvested stock option and restricted stock awards equal to 100 percent of the unvested amounts (up from 50 percent)
· Payment of base salary for 18 months in case of termination (increased from 12 months)
· Payout of target bonuses for the year if terminated
· Continuation of benefits for 18 months if terminated (increased from 12 months)
So it’s not out of the question, now that a sale to Johnson Controls (or Chinese company Wanxiang Group, if they can convince the bankruptcy court to let them compete for assets) is pending, that this expected payout of up to $4.2 million was premeditated by Vieau and friends.
To say they are undeserving might be the understatement of the year. Following the events that led up to the Feb. 8th compensation party, there were more follies to come. In March A123 announced to investors it would suffer a loss of $257.7 million for 2011, which far exceeded the already massive losses it experienced in the previous two years.
The following month A123 became the target of an investor class-action lawsuit and its stock price dropped below $1. The lawsuit followed a second recall by A123 due to defective batteries it delivered to Fisker, Smith Electric Vehicles and other customers. This failure caused a high-profile breakdown of a Karma while Consumer Reports was trying to test it for a review. And then later in the month an A123 battery caused an explosion at a General Motors research facility in Michigan, sending one employee to the hospital.
In July leadership announced it would access $39 million via a stock sale to institutional investors and the release of other cash after meeting requirements related to its existing reserves. The dilution drove the stock price down to its all-time low (at the time) of 69 cents. Despite an illusory promise that the company would receive an influx of cash from Wanxiang, with transfer of majority ownership as a possibility, NASDAQ warned A123 it would be delisted if its stock price didn’t rise above $1 for ten consecutive business days.
Then earlier this month Republican Sens. Charles Grassley and John Thune wrote to Vieau seeking detailed answers about its grant from DOE, its pending sale to the Chinese, how taxpayer funds were handled, and how its government contracts and security interests would be handled in light of the proposed deal. Only a couple days later the bankruptcy was declared and the Chinese deal appeared dead, with Johnson Controls the new suitor.
For this record of achievement, Vieau and his corporate buddies expect millions. Perhaps due to the legal agreements these rent-seekers set up, the company is obligated to pay them. That’s for the judge to determine, but even if it’s legal, it doesn’t make it right.
Beyond this bankruptcy, however, Grassley and Thune should not let up on their curiosity about A123, and House Committee on Oversight and Government Reform Chairman Darrell Issa also ought to investigate whether donations by Vieau and others at A123 to President Obama and Democrats had any influence. Those activities were followed by videos featuring Vieau that promoted cap-and-trade for the administration, and also a Rose Garden press conference that highlighted A123.
It has the appearance of crony capitalism on steroids, and might surpass Solyndra as the No. 1 example why taxpayer money shouldn’t be used for venture capitalism. No one is there to represent them in the boardroom or executive meetings, yet they get left holding the bag when self-serving actors make off with the government goodies.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.