An examiner hired to look at the books of bankrupt telecommunications services firm Summit Communications Inc. says the firm's leaders have benefited to the financial detriment of creditors. Examiner critical
of Summit’s financesThe bankrupt telecom firm is a
"mini-Enron," says a bankruptcy trusteeBy Tim Ruel
truel@starbulletin.com"It's sort of like a mini-Enron, or mini-WorldCom," said Mark Yee, who was hired to review Summit's financial condition. Yee, a bankruptcy trustee, has filed a court report that says Grant Johnston and Harry Johnston received questionable payments from Summit and from a separate company owned by Grant Johnston that works closely with Summit.
Summit, which provides call-center and telephone services, filed for Chapter 11 protection from creditors in February 2002. Summit owed more than $1 million in unpaid state and federal taxes, though the company said it has repaid one-fifth of what it owes to the Internal Revenue Service.
Grant Johnston is president of Summit. Harry Johnston is Grant's father and is a co-founder and principle shareholder of Summit. Grant also owns a company, Summit Exchange Inc., which provides similar services as Summit Communications, and has its work done by the staff of Summit Communications, Yee's report said. Yee said the companies should be treated as one and the same. Grant Johnston disagreed.
Grant Johnston also took exception to having Summit Communications labeled a "mini-Enron."
"(Yee's) comment ... confirms in my mind that he and others are on a fishing expedition," Grant Johnston said. "They're looking and fishing for wrongdoing."
The Johnstons say Yee's report is inaccurate and misleading, and said they will rebut any allegations of wrongdoing. The fundamental problem with the report, they said, is that they were not given a chance to clear things up before it was filed with the court.
When asked to respond to specific accusations within Yee's 17-page report, they repeatedly declined.
"There is available an explanation to every question that (Yee) may have come across," Grant Johnston said Friday. "Whether or not he chooses to believe our answers is up to him."
It may also be up to U.S. Bankruptcy Judge Robert Faris. Last year, the U.S. Attorney's Office, the state Department of Taxation and the U.S. Trustee's Office all backed the court appointment of a trustee to replace Summit's current management. Summit, in opposition, says the appointment of a trustee would only make it harder for the company to stay in business and pay off debts.
Yee's appointment was a temporary compromise between Summit and the government. His report supports the appointment of a trustee, as well as further investigation of the firm's finances. A lawyer for the U.S. government could not be reached for comment Friday.
In his report, Yee said Summit's latest financial statements to creditors are not to be believed, and that the company is not producing the profits that it claims. Plus, he describes Summit's past records as being in a mess that is so bad, he said, there is no point in trying to figure it out. "To get those books in order is going to take a major undertaking," Yee said.
Summit has acknowledged in the past that it had major problems with record-keeping under previous management, though the Johnstons said the more recent financial statements are accurate.
Summit recently lost approximately 20 percent of its overall business from one of its bigger customers, Sandwich Isles Communications Inc. Summit had provided technical support for Sandwich Isles, which is building a $500 million communications system that would link all Department of Hawaiian Home Lands residents.
Grant Johnston said that loss will not hurt Summit's plans to reorganize its finances, stay in business and pay off its debts over time. Summit has pared down expenses and increased its call-center business and other revenues, he said.
Since filing for bankruptcy, Summit has reduced its work force to 28 employees from 40.