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Redflex confirms bribery in Chicago contract management
Article by: Mike Barrett
Date: 6 Mar 2013
The summary findings of Redflex investigation into contract acquisition irregularities in Chicago has been released and is pretty damning. The investigation has resulted in the resignation of both the President and CEO and the CFO and the firing of an Executive Vice President.
The investigation concluded that payments of $2,030,000 in an arrangement between the Chicago City Program Manager, a consultant and Redflex would be considered bribery. Redflex not only paid for at least 17 holidays but that some of these trips and all of the expenses were approved by the former CEO.
The investigation also found that some disclosures to the Chicago Board of Ethics were 'inaccurate and misleading' and that the Redflex CFO either knew or should have known about this.
The Executive Vice President, who has been named as Aaron Rosenberg, was also deemed to have committed fraud and embezzlement involving personal expenses. Mr Rosenberg is now subject to separate legal proceedings.
In the mean time the board members have been replaced and the current structure of the Australian company's board has 3 US based members and one Australian. Today Redflex shares were trading at 0.95 AUD having recovered from an opening of 0.79 AUD when shares started trading after the suspension. Prior to the investigation announcement the Redflex shares were trading at 1.74 AUD in February with a 52 week high of 2.25 AUD. The company's problems have not ended there as they have also released their First Half Financial Report to 31st December 2012. This reflects a period before the investigation results were announced and reports a 49% drop in both profits and earnings.
The full summary of the Redflex investigation follows:
Summary of the investigative findings regarding the City of Chicago contract
1. The allegation relating to the Consultant/City Program Manager arrangement
The Consultant was paid $2.03 million from 2003 through 2012. Most of this amount ($1.57 million) was paid during a four-year period from 2007 to 2011.
The investigation concluded that the arrangement between the City Program Manager, the Consultant, and Redflex will likely be considered bribery by the authorities. The arrangement was likely intended to be one in which some of the payments to the Consultant would be paid to the City Program Manager, an arrangement apparently proposed by the City Program Manager.
At the least, the two former Redflex officials most involved in the Consultant/City Program Manager arrangement (the former CEO and former EVP) had knowledge that would have made any reasonable person highly suspicious that this was a bribery scheme, and they acted improperly in allowing this arrangement to occur.
Since Redflex does not have subpoena power, it does not have access to financial records that might show whether Redflex’s payments to the Consultant were in fact provided to the City Program Manager. But under the applicable law, the authorities may still consider this arrangement to be bribery even if the payments were not, in fact, made.
2. The allegation relating to vacations for the City Program Manager
The investigation concluded that Redflex officials paid for vacation-related expenses for the City Program Manager for at least 17 different trips from 2003 through 2010.
The expenses for 16 of those trips (including hotels, flights, rental cars, golf games, and meals) were paid for by the former EVP or the Consultant, who were reimbursed by Redflex. In addition, the former EVP or the Consultant purchased a computer, Chicago-area golf games and meals for the City Program Manager and was reimbursed by Redflex. These improper expenses totalled approximately $20,000.
The former EVP’s and Consultant’s expense forms typically did not reveal that the vacation-related expenses were for the City Program Manager, and the former EVP’s expense forms typically did not reveal that they related to Chicago. Required back-up documentation that would have provided the details of the expenses was often missing or incomplete.
The former CEO knew about and approved some of these trips and expenses. The former CEO also approved all of the former EVP’s and Consultant’s reimbursement requests, though the failure to provide appropriate details and documentation clearly violated company policies.
These expense payments violated the City of Chicago’s Governmental Ethics Ordinance.
3. The 2010 investigation
The 2010 investigation was conducted by a law firm with the assistance of the former CFO, and was overseen primarily by the former General Counsel and secondarily by the Audit Committee. The investigation consisted of interviews of three Redflex officials, no email review, and very limited document review.
The former CFO limited his review of the expenses paid to the City Program Manager to the former EVP’s expense reports for 2009-10. The former CFO did not analyze data from prior years or of other individuals. There was no attempt to interview the Consultant. Some of those interviewed by the law firm did not provide complete and truthful information.
The law firm’s 2010 report stated that all relevant employees had been interviewed and the relevant expense reports had been reviewed thoroughly. The report concluded that the allegations were unfounded except for a March 2010 $910 hotel expense for the City Program Manager, paid for by the former EVP and reimbursed by Redflex. The report did not discuss whether this or other expenses violated the City of Chicago Ethics Ordinance.
The investigation was conducted in a manner that was clearly inadequate to determine whether the allegations were true, and there was inadequate oversight.
4. The 2012 disclosures
Some of the October 2012 disclosures to the Chicago Board of Ethics and the Chicago Tribune were inaccurate and misleading. Those involved in both the 2010 investigation and the 2012 disclosures, including the former General Counsel and former CFO, knew or should have known this.
Among other things, it was improper for them to describe the 2010 investigation and the associated expense review as “thorough”, “complete”, or “exhaustive”. In addition, in Redflex’s submission to the Board of Ethics, it was improper for them to include, and refer positively to, a letter from the City Program Manager which falsely claimed that the $910 hotel stay was a billing error.
5. Other conduct
The investigation also uncovered numerous violations of company policy and company code of conduct by the former EVP relating to fraud and embezzlement involving personal expenses, which is the subject of a separate lawsuit the company has filed.
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| Comments
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 Posted by MikeB on Thu Mar 07, 2013 5:06 pm |
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It turns out that there are some further irregularities in at least two other cities where Redflex operate:
| Quote: | | The investigation by Sidley Austin has identified potential issues involving Redflex Traffic Systems Inc and certain former employees in two additional geographies in the United States. As the investigation is continuing, Redflex is presently unable to advise the extent of the potential issues... |
Mike Barrett |
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| Posted by taits on Fri Mar 08, 2013 12:48 pm |
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Redflex may well be corrupt, but Chicago and the middlemen should not go unscathed, for they are just as guilty. None have clean hands. Corruption needs to be dealt with to the limits allowed by law to set examples for they swore to serve the public not to steal or take bribes & make an extra buck.
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| Posted by MikeB on Fri Mar 08, 2013 1:38 pm |
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| taits Wrote: | | Redflex may well be corrupt, but Chicago and the middlemen should not go unscathed, for they are just as guilty. None have clean hands. Corruption needs to be dealt with to the limits allowed by law to set examples for they swore to serve the public not to steal or take bribes & make an extra buck. |
This is the internal inquiry commissioned by Redflex themselves and not an official legal inquiry. One may conclude from the results that the CBT and Police will also have their own findings and one would assume prosecutions.
Mike Barrett |
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| Posted by taits on Fri Mar 08, 2013 1:49 pm |
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Internal or not, it seems as though if they stonewall the process they may have more to hide. Am surprised it hasn't reached another lever with the amount of "money\perks" involved.
I'd think it the want the company to escape with lessor damage that has already been caused they should move it up a notch and let the authorities actually investigate and serve the subpoenas.
Clean house as needed.
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| Posted by Darren on Thu Aug 14, 2014 9:39 am |
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Here's an update in relation to the Chicago investigation released by the Australian Securities Exchange (ASX).
Redflex Chicago Investigation Update PDF (211kb)
Darren Griffin |
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