Editor’s Note: This is part three of a three-part series.
Part Three: The Final Bow
On Aug. 27, 2009, after significant maneuvering, the board fired Paul Feldman. A friend of Tony Rand’s, Alan Terry, was promoted to CEO. In a meeting with Martin Perry just before the firing, Rand tried to convince his fellow board member to stay. What he didn’t realize was that he was being secretly taped with Law Enforcement’s own equipment, and that this tape would later be used unsuccessfully in an attempt to discredit Rand.
Feldman suffered a “mini stroke” and wasn’t in attendance when he was fired, and Perry stayed away from work after the critical meeting due to stress induced flare-ups of multiple sclerosis. In September, the board let him go as well.
Both men submitted letters to the Department of Labor in 2009 in which they accused Tony Rand and Law Enforcement of insider trading (though Rand, unlike Feldman, never sold his LEA stock at the peak price in January 2005), stock manipulation, falsifying board meeting minutes, and omitting critical information in SEC filings.
Both also claimed they were wrongly terminated for disclosing the export information about Carrington, and on January 8, 2010, they filed suit.
While that was happening, Wortley also filed her initial suit (she would later sue Raymond James and four board members for conspiracy to breach a contract), Paul Briggs became CEO, and the stock price dropped to 8 cents per share despite $11.9 million in sales and a $127,000 net income.
In December, allegations emerged that the North Carolina state government had purchased more than $190,000 of gear from Law Enforcement in illegal no-bid contracts. A State Board of Investigations inquiry would go unresolved until February 2011, when Wake County District Attorney Colin Willoughby, a who had supported Rand politically as far back as a 1988 bid for lieutenant governor, cleared the company of wrongdoing.
To add insult to injury, Law Enforcement was forced to take an impairment charge on the assets they purchased from Wortley and the stun gun patent in the third quarter 2010. Along with a $1.26 million valuation allowance on tax assets that were finally deemed unrecoverable, and a $100,000 lawsuit settlement regarding an expired company trademark, sales in 2010 were reduced by almost half to $5.5 million. The net loss for the year was more than $4.2 million.
“Most of our customers are state and local, city, county governments,” said Tony Perry, the Law Enforcement controller. “It’s not big secret that state and local budgets have been cut, and that’s our customer base. So that certainly injures our success.”
Zoom in and scroll through the timeline to see the progress of LEA through the years.
LEA Through the Years
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2011 proved to be the death knell for Law Enforcement. Agents from the Federal Commerce Department raided the headquarters in March, seizing a surveillance van bound for Morocco that violated export restrictions. Evidence was found of six foreign transactions — to Egypt, the Netherlands, and Great Britain — that had already taken place without the required license from the U.S. Department of Commerce. No criminal charges were filed initially, but New Prime Holdings, the Moroccan company who supplied Law Enforcement with the van, sued in November, alleging that company officials lied to them about the documentation needed.
Efforts in March 2010 to dismiss Feldman and Martin Perry’s charges met with some success, as a North Carolina court threw out charges of civil conspiracy and wrongful termination while allowing charges of breach of contract and violations of the Americans with Disabilities Act to stand trial. (Feldman and Perry did not respond to requests for comment.)
But in the end, it was the Wortley lawsuit that brought the company down. Up until the trial date, the company maintained in a recent SEC filing that the asset purchase agreement “was not a valid contract.” This language represented a departure from a 10-Q filed soon after Wortley’s suit, when Law Enforcement admitted to being “currently in default of this agreement.”
Tony Perry said the company could not elaborate on why the agreement might be invalid.
“The public record is out there for all to see,” Joe Wortley said. “The question is, if you strike a bargain and shake hands and sign a contract, should it be enforced?”
Unfortunately for Law Enforcement, the jury said “yes.” In a short decision rendered just weeks after the trial began, on June 27, 2011, the jury found that Law Enforcement breached the Asset Purchase Agreement. They awarded Wortley $1.1 million in damages.
It was always clear that if the Wortley lawsuit was lost, the company’s meager store of $76,000 cash and $2.5 million in total assets wouldn’t be enough to avoid bankruptcy or worse. In that case, they would need help from Raymond James to maintain operations.
Raymond James representatives wouldn’t comment on their intentions last March, but it turned out that no help was forthcoming. On July 27, Law Enforcement filed for Chapter 11 bankruptcy. They listed debt liability of $1.7 million — most of it owed to Wortley — and assets under $50,000.
As the bankruptcy court process unfolded, the company sued Taser International in November for breaching a purchase contract relating to patents for the failed stun gun project. Meanwhile, Perry and Feldman’s lawsuits, along with the New Prime Holdings surveillance van case, continue to make their way through the court process, representing further potential liabilities.
The legal process drags on, but the company’s functional existence has come to an end. After more than a decade of avoiding the ultimate consequence for decisions that were questionable on business and ethical levels, one of the strangest chapters in regional business history draws to a conclusion — Law Enforcement’s number is finally up.