DALLAS-Limited partners who financed PCS 2000 Inc.’s winning bids on 15 C-block personal communications services licenses-still under scrutiny by the Federal Communications Commission following petitions to deny and an unauthorized change in general partners-apparently have reached the limit of their patience and are wondering either how to get their licenses quickly or get their money back.
Meeting informally in Dallas Dec. 14, some 60 PCS 2000 limited partners discussed how to move forward to enhance their money and their power base. The group was led by Gary North, a Tyler, Texas-based Christian financial newsletter editor who championed investment in the venture to his subscribers and his old friend, former PCS 2000 director Anthony Easton, who has been accused of making the bidding error that started all of the partnership’s woes.
Instead of joining this meeting, PCS 2000’s general partner, Old San Juan, Puerto Rico-based SuperTel Communications Corp., set up a conflicting LP meeting of its own the same day in Chicago.
“I want to maximize my return as a investor,” said North, who holds three shares in PCS 2000. “I want the LPs to gain greater information, control over expenses and preserve the reliability and integrity of the original venture. I believe the licenses will be granted.”
“Nobody fights over nothing,” added Easton. “We’re here, and the general partner is here. There is $2 billion at stake if the licenses are fully developed.”
The reason for the meeting-to amend PCS 2000’s partnership agreement to curb the activities of SuperTel-unbeknownst to the LPs fell by the wayside the night before the meeting following a phone call from the mergers and acquisition department of the Securities and Exchange Commission to North’s attorney regarding the meeting’s agenda. SuperTel had asked for an injunction against the meeting, which was turned down by the courts, and then the general partner apparently approached the SEC for help. While a representative of the SEC told RCR that the agency had no problem with either North’s scheduled informal or formal meeting, there were some reservations that she could not discuss. North decided the SEC’s call was reason enough to cancel the “official” part of the gathering, which was to deal with the amendments and related proxy statements.
“I ran into a government buzz saw for sticking my fingers in where they didn’t belong,” North told the LPs.
More than 1,600 entities bought shares in PCS 2000 some two years ago on promises by engineering companies and newsletter editors that PCS would be more lucrative than cellular; many of them have upwards of $25,000 invested and all have been dunned by the current general partner for an additional capital call to keep up with legal and operating expenses. There has been little information flowing from the GP to the LPs regarding the status of their licenses and reasons behind the delay along with no day-to-day accounting for monies spent. Many of the investors admitted not realizing that they would be liable for many capital investment calls in the future if the FCC awards their licenses; they thought they only were committed to their original individual investments, and the business would be built from those.
It was the capital-call straw that apparently broke many limited partners’ backs, and only a scant 20 percent of LPs responded with cash. Most of the attendees expressed concern over how SuperTel was handling the licensing delay along with the cancellation of any talk regarding a partnership change.
“The best thing to be done is to have a cleansing effect, and there are two or three ways to do this,” explained Ed Lowe, an attorney representing Easton, who is under investigation by the FCC regarding his role in a PCS 2000 bidding error; his wife Susan also filed a petition to deny against the award of PCS 2000’s licenses. “We can file a proxy certification of full disclosure. We can let time go by before we effect changes so that an initial public offering would not be affected by a negative press. Or we can go directly to the SEC to discuss the problem.” Lowe also suggested that LPs could form an advisory committee to oversee SuperTel’s annual budget or form an operations committee to put restrictions on the GP’s expenditures of funds.
Another Easton attorney, Richard Hirsch, told the LPs that one of the reasons the FCC has not acted on awarding PCS 2000’s licenses is because of the change in general partner from Unicom Inc. to SuperTel last summer; the principals of the company remain generally the same except for the board resignations of Easton and of Quentin Breen. “In the eyes of the FCC, when there is a change of ownership, there is an investigation,” Hirsch said. He does not believe the Eastons’ former roles in the venture have influenced the commission in any way, and LPs were told there could be action on the licenses by mid-February.
Hirsch also mentioned that SuperTel-which bought PCS 2000 for a $100,000 promissory note from Unicom-plans to hold Unicom responsible for all damages and legal fees resulting from the FCC’s investigation. He also said SuperTel has an attachment on some $6.5 million that was scheduled to go to Romulus Engineering-which put the PCS 2000 deal together-if the LPs were successful in winning licenses.
Gerald Lukas, a principal of law firm Lukas, McGowan, Nace & Gutierrez in Washington, D.C., which represents Easton, told attendees via telephone hookup that “the facts suggest that the general partner changed at the FCC’s suggestion … Bill Kennard (the FCC’s general counsel) has disavowed any knowledge of making a SuperTel deal … the FCC made a mistake, and now it wants to distance itself from it.” Lukas reiterated that the pending licenses were won in the name of PCS 2000 L.P., and that the FCC “will do everything it can to preserve the PCS 2000 licenses. It is my view that it’s unlikely they will be dismissed.”
Lukas also was hopeful that licenses would not be denied without a hearing, and that the original general partner, Unicom, would be restored. When asked if SuperTel would be liable to the partnership for any damages, Lukas said he didn’t know.
Tom Gutierrez, Lukas’ partner, also weighed in by phone, saying that PCS 2000’s problems at the FCC were unique because “it has been challenged by insiders … there are basic fraud charges pending against the GP (regarding a trust owned by Easton’s wife, Susan). We are looking to early 1997 for a hearing.” As far as holding SuperTel liable for any damages, “It seems to me that the sooner you make wrongdoers aware of your challenge, the sooner it will be solved,” Gutierrez said.
Another concern LPs wanted addressed was the then-pending bidding-error penalties faced by the LPs and how they would be paid. Gutierrez pointed out that most bidding penalties have been “relatively small” and that some cases will be taken to court. “My idea on the bidding error is to take your lumps and move forward, like challenging it in court. You could combine efforts with others, but you still must pay the fine.”
Since that meeting, the FCC has assessed PCS 2000 penalties of $3.2 million for the Norfolk, Va., bidding error and $1.2 million for the Omaha, Neb., “fat finger” mistake; fees were deducted from PCS 2000’s upfront auction payment still on deposit with the FCC. In a separate proceeding, the commission continues to deliberate allegations of “material misrepresentations” regarding the Norfolk bidding error.
LPs wondered if they should be connecting with the FCC in some way to plead their case. Gutierrez encouraged this, saying, “The FCC could be biding its time to see if the GP will resolve its own problems. The LPs should take the bull by the horns. I would make a statement and request relief, like being allowed to reform the application to what it was in the beginning.”
Following the departure of North, Easton and the attorneys, several LPs stayed behind to discuss plans for future strategy, which included drafting a form
letter to the FCC regarding the licensing delay. One attendee said optimistically, “If everyone stands pat and stays cool, we can all make a lot of money. The only way we can lose is to go off on a tangent.”
Sources who attended the SuperTel-sanctioned Chicago meeting painted a significantly different picture of the current state of PCS 2000 and its LPs. Some three hours of the four-hour meeting were spent blaming Easton for all of PCS 2000’s licensing problems, RCR was told, and the final hour was spent trying to answer questions posed by approximately 120 attendees.
“Everyone I spoke with thought the Chicago meeting was a cheap shot” against LPs who were meeting in Dallas, said one limited partner who spoke on an agreement of anonymity. “When the GPs were confronted with real questions, they took a step back.”
As it was with those LPs meeting in Texas, money was a key concern, especially the capital call and soaring legal expenses. SuperTel director Dan Parks told the LPs after some deliberation that because the GP was “representing you and protecting your licenses,” the LPs ultimately would have to foot the bill for any and all legal expenses.
Some LPs questioned the validity of “Puerto Rican lawyers” running a U.S. wireless concern from off shore; when SuperTel principal Fred Martinez attempted to outline how hard he was working on the partnership, to the point where it was interfering with his family life, some LPs invited him to resign.
A special report issued by SuperTel prior to the meeting that said former director Pat Jordan had sold out her significant shares in the partnership also was questioned, both because some LPs would like to sell theirs and because Jordan in actuality continues to hold her original PCS 2000 units; SuperTel representatives said they would look into the matter.
Finally, LPs were discouraged from contacting their congressmen about the time lag at the FCC with the suggestion that the results would be negative.
