Business

Trustee files fraud suit against former leaders of Charlotte-based DesignLine

Lillie Mae Duncan drives her bus to the maintenance lot outside Charlotte Douglas International Airport Wednesday, December 18, 2013. The Charlotte airport's 10 buses made by bankrupt bus manufacturer DesignLine have suffered a fire, brake problems, ongoing maintenance issues and a scarcity of parts over the last seven years.
Lillie Mae Duncan drives her bus to the maintenance lot outside Charlotte Douglas International Airport Wednesday, December 18, 2013. The Charlotte airport's 10 buses made by bankrupt bus manufacturer DesignLine have suffered a fire, brake problems, ongoing maintenance issues and a scarcity of parts over the last seven years. tsumlin@charlotteobserver.com

The bankruptcy trustee overseeing the liquidation of the Charlotte-based bus maker that once employed U.S. Transportation Secretary Anthony Foxx has filed a wide-ranging lawsuit against former company officials, alleging fraud, violations of racketeering statutes and breaches of fiduciary duty.

The suit filed by trustee Elaine Rudisill accuses retired Gen. Buster Glosson, DesignLine’s former chairman, and his son, Brad Glosson, the company’s former CEO, of working to “pilfer assets” and “siphon monies” from the company, its creditors and its investors.

The suit also says the Glossons hired Foxx, the former Charlotte mayor who became transportation secretary in July 2013, in an “attempt to influence” him to secure government contracts. Foxx, a Democrat, is not named a defendant in the 182-page complaint filed late Thursday in U.S. Bankruptcy Court in Charlotte.

Earlier this week, Rudisill sued Foxx, seeking to recover the more than $420,000 in pay he received while employed by the company.

The suit filed Thursday against the Glossons and 15 co-defendants alleges they diverted company funds for their own personal use and steered “millions of dollars” of the company’s “business opportunities to their other businesses.” The complaint seeks to recover “the value of the money, property, and business opportunities taken by the defendants that rightfully belonged to these Debtors and their creditors,” according to the complaint.

The suit alleges the defendants used “bribery, forgery, mail fraud, and wire fraud, to accomplish their goals.” When DesignLine’s debt burden became too much, a group of the defendants, including the Glossons, built themselves a new business making identical buses in a factory once built by the company. That company, initially incorporated in 2011, is now known as Global Bus Ventures.

In a statement to the Observer on Friday, Buster Glosson said the claims were baseless.

“Simply stated, the claims are a character assassination of ... people who did everything humanly possible to help DL Corp succeed, to include, providing more than $15,000,000 in financial support,” he said. “We are requesting the bankruptcy Judge to dismiss the claims.”

Brad Glossson said in a statement that the claims filed by the trustee are “completely without merit and contrary to the very documents in her possession.”

Brad Glosson said the defendants will be seeking the dismissal of the allegations, which came without the trustee asking them any questions.

“The filing of bankruptcy by DesignLine almost one and a half years after my departure was disappointing given that when I left, DesignLine had millions of dollars in available cash and a strong backlog of orders from top tier agencies,” Brad Glosson said. “Nobody wanted DesignLine to succeed for its investors more than me.”

Foxx’s attorney, Mark MacDougall, could not be reached on Friday.

In response to the suit filed earlier this week against Foxx, MacDougall said the filing was “routine” and one of “many dozens” filed by the trustee. “It was filed just before the statute of limitations ran out,” he said. “We are confident it will be resolved in the secretary’s favor.”

‘Essentially no services’

The suit filed Thursday alleges that the Glossons, despite the company’s “constant insolvency,” used DesignLine to pay people who “provided no lawful services” to the company, including Foxx, who served as DesignLine’s deputy general counsel.

During his employment from Dec. 1, 2009, to July 1, 2013, Foxx was either mayor of Charlotte or a nominee for U.S. transportation secretary, resigning one day before taking his current post.

During his tenure, the suit alleges, Foxx provided “essentially no services” to the company despite being paid more than $420,000. The company’s books and records do not reflect any communications between Foxx and DesignLine’s outside law firms, and Foxx spent “little to no time” at the company’s facilities, the suit says.

According to the suit, the Glossons, “upon information and belief,” had DesignLine pay Foxx as an “attempt to influence” him, as either mayor or the nominee to become U.S. transportation secretary, “to secure government contracts and/or other benefits for the Debtors.” The suit does not list any examples of contracts that Foxx secured.

The suit claims the pay that Foxx received while serving as mayor constitutes a violation of state bribery laws, while the $16,000 in pay he received after being nominated to become transportation secretary violates federal bribery laws.

Buster Glosson, a Persian Gulf War hero who moved to Charlotte after retiring from the Air Force, told the Observer earlier this week that Foxx, in his role as business development and legal adviser to the board, helped the company secure over $7 million in revenue. Foxx “is a man of impeccable integrity and was underpaid, given the $7,000,000 in revenue he made possible,” he said.

When Foxx decided to join DesignLine shortly after being elected mayor, he asked the city attorney for a “conflict of interest advisory opinion,” according to documents obtained by the Observer last year.

In January 2010, then-City Attorney Mac McCarley and then-Senior Deputy City Attorney Bob Hagemann advised Foxx he could continue in his dual roles if he excused himself from City Council matters related to his new employer.

The suit filed Thursday asks for a judgment to be entered against the defendants in favor of DesignLine but does not specify an amount, saying it should be proved at trial. Rudisill declined to comment.

On Thursday, Rudisill also filed suit against six former directors of the company, including former Gov. Jim Martin and Charlotte businessman Ed Weisiger Sr., alleging breach of fiduciary duties. The board members “ignored red flags of impropriety” by certain officers and “utterly failed to install an adequate oversight mechanism,” the suit says.

Reached by phone, Martin said he needed to “digest” the complaint. Weisiger could not be immediately reached.

Troubled history

A group led by the Glossons bought DesignLine in 2006 and moved it to Charlotte from New Zealand. DesignLine attracted high-profile investors such as Martin and businessman Cameron Harris. But over time, the company faced lawsuits and contract cancellations over late deliveries and performance problems, according to court documents.

DesignLine’s assets were sold in bankruptcy court in 2013 to a California-based investment group, but Rudisill continues to file suits in an attempt to recover more money for the company’s creditors. She has filed dozens of these suits, called “adversary proceedings,” some of which have resulted in court-approved settlements.

Starting in 2013, the Observer began reporting on losses sustained by DesignLine’s investors and problems with buses the company sold to Charlotte Douglas International Airport. The airport last year auctioned off its 10 DesignLine buses.

The Observer reported in 2013 that the FBI was investigating DesignLine over allegations the company placed used parts on new buses. An FBI spokeswoman said she could neither confirm nor deny the existence of investigations.

Rick Rothacker: 704-358-5170, @rickrothacker

Timeline

▪ 2006: A group led by Gen. Buster Glosson moves DesignLine to Charlotte from New Zealand. The company would struggle financially for years.

▪ 2009: DesignLine hires Charlotte Mayor Anthony Foxx as deputy general counsel; he stays until he becomes transportation secretary in July 2013.

▪ Aug. 2013: DesignLine files for bankruptcy protection.

▪ This week: Bankruptcy trustee files suit against the Glossons and other defendants, alleging fraud. Separate suit seeks to recover Foxx’s wages while working at the company.

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