RadioShack’s unsecured creditors are on a suing spree, in pursuit of at least $200 million in damages.
The creditors include vendors Toshiba and MagicJack; mobile carriers Verizon and AT&T; service providers Assurant and FedEx; plus bondholders, past employees and landlords.
They’re arguing, through a creditors committee, that current owner Standard General, along with ex-CEO Joe Magnacca, Wells Fargo and the former RadioShack board, conspired to push the failing chain into Standard General’s waiting hands, leaving the creditors out in the cold.
The lawsuit, filed yesterday in RadioShack’s old headquarters town of Fort Worth, Texas, claims that hedge fund Standard General and its founder, Soohyung Kim, “with the complicity of RadioShack’s conflicted CEO and faithless board of directors, delayed actions that could have preserved significant value in the company,” costing the plaintiffs about $500 million, The Dallas Morning News reported.
Instead, Standard General, which had been RadioShack’s largest shareholder, bought the chain’s brands and its 1,743 best stores in a series of bankruptcy auctions.
Specifically, the suit alleges that Kim urged Magnacca and the board to fire or otherwise straight-arm AlixPartners, a financial consultancy brought in by the directors in 2013 to help salvage the business. According to the Wall Street Journal, Kim wanted to circumvent the consultancy, calling its managing director and interim RadioShack chief financial officer Holly Etlin “a snake,” and to enact a plan that would ensure his continued control of the company post-bankruptcy.
This was achieved by becoming a secured lender through a Wells Fargo-arranged loan, which was approved just four months before the February bankruptcy, ostensibly to tide the chain through the holiday selling season. The bank was well aware of RadioShack’s insolvency, the suit charges, and cites an Oct. 2, 2014, email exchange between a Wells Fargo analyst and managing director:
“Would it be risky for me to buy you a gift card from [RadioShack] now for your Christmas present?”
“I think you are good but you will definitely need to use it before [March 15].”
The suit is seen as a last-ditch attempt to recover lost monies before the remaining assets of what had been RadioShack (now called RS Legacy Corp.) are divvied up in bankruptcy court on Sept. 16.