President Obama’s penchant for flushing taxpayer money down the green energy toilet lives at least another four years, and his crony supporters continue to benefit.
The latest example is the pending sell-off of assets by bankrupt A123 Systems, which was awarded upward of $279 million in stimulus funds, plus other assorted government grants and contracts. The top executives who presided over its failure – and supported the president’s cap-and-tax initiatives early in his term – are likely to receive millions of dollars in bonuses, thanks to their scheming earlier this year and a bankruptcy court judge.
Associated Press reported that that judge, Kevin Carey, ruled on Thursday that the electric vehicle battery maker can proceed with the bankruptcy process after a break-up fee – as part of a deal for Johnson Controls to buy its automotive assets – was lowered. Had a deal not been consummated, Johnson could have been paid up to $7.75 million. Those fees have been reduced to $5.5 million.
Carey also approved a controversial plan to pay bonuses to senior A123 officials, despite objections from U.S. trustee Roberta A. DeAngelis. The company reduced the amounts to be paid from as much as $4.2 million by roughly a half-million dollars, which didn’t pacify the trustee but nevertheless the judge approved. As NLPC has reported, company directors earlier this year – as A123’s stock price tanked, recorded more losses, and implemented layoffs – awarded CEO David Vieau and other top executives big parachute payouts should the company change ownership.
That transaction is nigh. According to a Dow Jones report last week, before the judge rendered his decision, lawyers for DeAngelis argued that the bonuses were only a “disguised retention plan.” As the article noted, U.S. bankruptcy law forbids such bonuses if the goal is to keep executives from leaving.
“Key-employee retention plans, dubbed KERPs, have long been a controversial feature of big Chapter 11 cases,” Dow Jones reporter Patrick Fitzgerald wrote. “Bankruptcy-law changes that took effect in October 2005 were meant to curtail a company’s ability to pay bonuses to senior executives while shortchanging rank-and-file workers.”
That appears to be what’s happening, as either Johnson Controls or China-based Wanxiang Group likely will absorb A123’s assets into their own operations. In February, only a couple months after the company laid off 125 workers at its Michigan plants, company directors awarded top executives big salary increases. Chief Financial Officer David Prystash, VP of Energy Solutions Robert Johnson, and VP of Automotive Systems Jason Forcier saw their salaries increase between 27 percent and 51 percent. Prystash had just been hired in May 2011 at a base salary of $300,000 plus a $50,000 signing bonus.
In addition, CEO 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 stock units. An SEC filing said the stock would fully vest “in the event the company consummates a ‘change of control’ transaction.” Also A123’s compensation committee of its Board of Directors hiked the remuneration terms of its top officers should control of the company change hands, which included accelerated vesting of unvested stock options and restricted stock awards; payment of base salary for 18 months in case of termination; payout of target bonuses for the year if terminated; and continuation of benefits for 18 months if terminated.
For this kind of behavior, investment analyst Sean Williams of the Motley Fool has twice bestowed Vieau with its “CEO Gaffe of the Week.” The first instance came in June, when Vieau announced A123 had developed an improved battery called Nanophosphate EXT, part of an alternating “good news-bad news” press release exercise to try and keep A123’s stock price viable. Williams noted A123’s cash burn and manufacturing woes, yet with its new technological breakthrough, Vieau announced the addition of 400 new employees.
“Seriously?” Williams wrote. “Spending even more when you admit your cash flow is deeply negative is a strategic alternative? I was unaware that corporate suicide was a business tactic.”
Then last week Williams gave Vieau the “prize” (a dunce cap) a second time for the pursuit of “wholly undeserved” bonuses as the bankruptcy proceeds. Yet he tried to find a way to look on the bright side.
“At least when the sun rises tomorrow,” Williams wrote, “taxpayers won’t have to worry about David Vieau being in charge of their money!”
Meanwhile Republican Sens. Charles Grassley (Iowa) and John Thune (S.D.) have been dogging the Department of Energy and A123 Systems for answers about their grants, their use of taxpayer dollars, and the pending sale to the Chinese. Last week the senators pressed Treasury Secretary Timothy Geithner, who oversees the Committee on Foreign Investment in the United States – which would have to approve a sale of A123’s technology and assets to Wanxiang – to protect U.S. military and taxpayer interests. In addition to DOE stimulus grants, A123 has contracts with the Department of Defense.
“Considering A123’s grid energy storage activities and active military contracts,” Thune wrote, “the Obama administration must thoroughly scrutinize any transaction that would lead to A123 being owned by a foreign company. After several attempts, Senator Grassley and I have yet to receive straightforward answers from the administration on taxpayer-backed A123.”
“A Chinese company could still gain access to technology supported by U.S. taxpayers and developed in part to help the Department of Defense,” Grassley wrote to Geithner. “Since the Administration so far seems unconcerned about this possibility, this review by the Committee on Foreign Investment in the United States is the last line of defense.”
Besides the troubling developments surrounding A123 and the Administration’s unwillingness to answer questions about it, Grassley and Thune undertook an analysis of the $2-billion stimulus-funded advanced battery-manufacturing program. They determined that the DOE expended $158,556 per job created, and many of those jobs were either temporary or later cut. As for the stimulus money that went to A123, each job “created” cost $317,435, according to the senators’ analysis.
“The Administration should not overstate the value of this program as a boon to economic recovery,” said Grassley. “The facts show otherwise.”
“President Obama’s failed stimulus spending program contributed to America’s dangerously-high $16 trillion national debt and record federal deficits of over $1 trillion year after year,” said Thune.
The auction of A123 will be held on December 6 with Johnson Controls as the “stalking horse” bidder ($125 million) for its automotive assets, which is expected to be topped by other bidders including Wanxiang and perhaps 10 to 20 other companies, according to Dow Jones. Wanxiang had an offer of $465 million for 80 percent of all of A123’s business before bankruptcy and Johnson Controls came along, but the senators’ scrutiny and a threatened delisting of A123’s stock by NASDAQ helped scuttle that deal.
The vultures are circling the corpse, the executive heirs are trying to run off with their inheritance, the taxpayers are grieving over their wasted “investment,” and Sens. Grassley and Thune are left to try to put together a eulogy. Unfortunately they don’t have anything good to say about the sorry bloke.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.