March 30, 2005 Innovative Communication Corp. and its telephone company subsidiary, Vitelco, have not paid $14 million owed their bankers by the due date, according to the Rural Telephone Finance Cooperative.
"We are not in default on these obligations. These claims are false and misleading," Jeffrey Prosser, president, chairman and chief executive officer of ICC said. "These claims . . . are the newest links in the RTFC's chain of predatory conduct for which we have sued the RTFC," Prosser continued in a press release issued Wednesday.
On Tuesday RTFC, a wholesale bank for rural utilities headquartered in Herndon, Va., issued a statement saying that ICC "was required to pay $10,034,876.71 for a maturing secured line of credit [as of March 20]" but had paid only the $34,876.71 in accrued interest.
ICC's subsidiary, Vitelco, was similarly faulted for failing to pay $4 million of $4,013,950.68 due to RTFC, according to a statement that was also filed by the bank with the U.S. Securities and Exchange Commission.
RTFC said that as a result it has sued Vitelco for the $4 million in the U.S. Federal Court in the Eastern District of Virginia; further, RTFC cited the alleged default of $10 million as an additional default to be added to its suit against ICC now pending in the Federal District Court in the U.S. Virgin Islands. (See "Cooperative Sues ICC and Says it Owes $530 million").
In addition, RTFC, for the first time in this litigation, placed all loans to ICC in "non-accrual status as of Feb. 1, 2005." This is a banker's way of saying the loans are overdue.
ICC's statement on the matter was considerably longer than RTFC's and included these statements:
"RTFC improperly seized $61 million of ICC's assets in January 2005 and holds in excess of $3.5 million of Vitelco's assets that should have been applied against any short-term loans that ICC had. Instead of applying these funds against short-term, higher interest rate debt, RTFC in an act that ICC's attorneys believe is an additional element of bad faith — applied it against lower-interest, long-term debt."
The Source was unable to secure comments from either side, at press time, regarding just what assets RTFC had seized, or how that was accomplished. RTFC is a subsidiary of National Rural Utilities Cooperative Finance Corporation, a non-profit organization usually known by the initials CFC.
The ICC statement also said, "ICC believes that RTFC-CFC management has spearheaded an aggressive . . . campaign against ICC fueled by false information in response to ICC's recent investigation into potentially improper accounting practices and potential concealment of tens of millions of dollars of profits."
Among the questions asked by ICC in this connection were these: "Why does it appear that RTFC may be violating the Internal Revenue Code by shifting revenue from the for-profit RTFC to the non-profit CFC while shifting expenses from CFC to RTFC? . . . Why has RTFC changed auditors three times in the last four years?"
On the last point, the Source reported several years ago that CFC had, like many major corporations, dropped Arthur Anderson as its auditor following the Enron scandals, thus accounting for one of the three changes.
Again, no one from CFC-RTFC was available to comment on these charges at press time.
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