Former CRT CEOs and Bank Face Fraud Charges

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A former Wisconsin state senator has filed a lawsuit against former e-scrapbook executives. | dream79 / Shutterstock

The shuttered electronics scrap company 5R Processors has been at the center of a storage saga. Now, a former Wisconsin state senator has said company executives tricked him into supporting the company in 2013.

On July 20, Kevin Shibilski filed a lawsuit against former executives of 5R Processors, an e-waste company headquartered in Ladysmith, Wis., Before shutting down amid a controversy over the storage of CRT. In May, company executives pleaded guilty to conspiring to store and transport hazardous waste.

Shibilski, a former Wisconsin state senator, got involved in 5R in 2013, when he signed a deal to invest in the company and get it out of financial distress.

Shibilski’s lawsuit, which was filed in US District Court for the Western District of Wisconsin, claims he was presented with information showing that 5R owed about $ 315,000 in unpaid payroll taxes. But in reality, the financial liabilities were much higher and the company’s storage problems were much deeper than what was represented to the investor, according to the lawsuit.

“Shibilski fell victim to a group of fraudsters who tricked him into investing in 5R processors by falsifying books and records that hid hundreds of thousands of dollars in unpaid taxes and ongoing environmental programs involving storage hazardous waste, ”attorney Mark Belongia, who represents Shibilski, said in a press release.

The lawsuit accuses 5R officials Thomas Drake, James Moss and Bonnie Dennee of fraudulently inducing Shibilski to invest under false pretenses and breaching their fiduciary responsibilities to the company. Drake, Moss and Dennee await sentencing after the three pleaded guilty to the hazardous waste charges, with Moss also pleading guilty to defrauding the IRS over $ 850,000.

Additionally, the complaint accuses a local bank and senior bank executives of fraud and other financial mischief, alleging that they helped former 5R officials set up a competing electronic scrap company to steal assets and of customers at 5R.

The defendants have yet to file responses at the trial.

Financial demand stimulates investor involvement

5R’s money problems started with the decline in CRT markets, according to the lawsuit. According to the complaint, in 2004, display manufacturers paid an average of $ 205 per tonne for processed CRT glass. But as LCD technology took hold and the demand for new CRT televisions and monitors declined, the economy changed dramatically. In 2012, “electronics recyclers like 5R had to pay an average of $ 200 / tonne to recycle CRT glass,” the lawsuit said.

As these costs hit 5R, the company “accumulated large amounts of CRT glass for which it could not properly store or meet the one-year disposal requirements” set out in federal law. This non-compliant accumulation occurred at least between 2010 and 2012, according to the lawsuit.

Shibilski’s complaint stems from 5R’s decision to search for money when it was experiencing financial instability. The company’s attorney contacted Shibilski while he was working on 5R’s debt restructuring, according to the complaint. Shibilski worked for an investment management firm and also had ties to the Wisconsin Economic Development Corporation, which 5R saw as a possible source of financial assistance.

But when funding by the economic development agency, Shibilski’s company, and a bank all failed, 5R offered “direct investment” by Shibilski, the complaint says.

The scrap electronics company offered Shibilski a salary, gradually increasing the company’s equity stake and a CEO title. In return, he was to assume personal guarantees from then-CEO Drake on the company’s debt.

As part of the solicitation of its investment, 5R created a business plan with financial information, but all of those documents “contained material misrepresentations or deliberately omitted material facts,” according to the complaint. These included falsely claiming the company was in compliance with federal storage requirements, details of how much CRT 5R glass was stored and its location, various debts, etc., according to the complaint.

Shibilski struck a deal with 5R in 2013, becoming CEO and acquiring 15% of its shares. He did not learn of the company’s CRT storage and movement issues until late the following year, when he visited a 5R facility and “saw the glass for himself,” according to the trial.

Because he made the business deal and incurred the company’s debt with false information, Shibilski is asking the court to overturn the deal and compensate him for his financial losses.

Bank embroiled in fraud charges

The lawsuit also alleges that Ladysmith Federal Savings and Loan was involved in concealing from Shibilski financial mismanagement related to 5R’s bank account. He also accuses former 5R and bank officials of racketeering related to the creation of a separate company to compete with 5R.

The following is according to Shibilski’s trial:

Moss, who was president of 5R, made a series of overdrafts on the account of the 5R company, totaling $ 349,000. The bank was aware of these discoveries but worked with Moss to hide them from Shibilski. He was only made aware of the overdrafts weeks after personally guaranteeing the debt of the 5R company.

Additionally, in 2014, 5R’s attorney advised Shibilski to set up a separate “sister company” called Pure Extractions with a specific focus on glass recycling. Pure Extractions also had Shibilski as its CEO, but Moss controlled the bank accounts. Moss passed him and committed fraudulent activity using this account.

At the same time, Moss was conspiring with other 5R officials as well as Ladysmith Federal Savings and Loan and a bank representative to create another new company, called PXL, Inc. This company was designed to compete with 5R and Pure Extractions, from early 2016. The bank representative “was fully aware that PXL was being set up to steal the assets and customers of 5R and Pure Extractions,” according to the lawsuit.

Later that year, Moss left 5R to work for PXL. It took assets including equipment, office furniture, documents and customer databases for use by PXL.

Eventually, 5R’s financial troubles led Shibilski to default on the debt he had guaranteed, which sparked a dispute between Shibilski and Ladysmith Federal Savings and Loan, the debt holder, over the terms of settlement.

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