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Pacific Coin Management and P. Edward Hindelang vs. BR Telephony Partners; William Rogers; Coinable Simon; William Simon; and William E. Simon & Sons

Unfair Business Practices; Fraud; Misrepresentation

Pacific Coin Management and P. Edward Hindelang vs. BR Telephony Partners; William Rogers; Coinable Simon; William Simon; and William E. Simon & Sons
Superior Court of the State of California, County of Los Angeles, Case No. BC242432

Counsel for Plaintiffs: Paul, Hastings, Janofsky & Walker

Counsel for Defendants: Seyfarth Shaw; Krafchak & Associates
Expert for Defendants: Marc S. Margulis, C.F.A., A.S.A., M.B.A

On February 11, 1998, BR Telephony and WES & Sons acquired controlling interest in Pacific Coin, a newly formed entity that simultaneously acquired the assets of four independent payphone operating companies (IPPs) to create the largest IPP in the State of California and the fourth largest IPP in the United States. The transaction, according to Paribas and BankAmerica, which together underwrote the financing, was “well structured and strongly capitalized”, with substantial new equity committed to the enterprise. BR Telephony and Coinable Simon became financial partners with a management team comprised of the former owners of the acquired IPPs.

Leading the management team was P. Edward Hindelang who founded the largest of Pacific Coin’s predecessor companies in 1987. In December of 1998, it became public knowledge that Mr. Hindelang was a convicted marijuana smuggler who, in 1981, pled guilty to seven felony counts, served 30 months in prison, and forfeited millions of dollars to the U.S. Government. In 1998, after the transaction date, Mr. Hindelang admitted to concealing additional millions of dollars in drug proceeds outside the United States and forfeited $50 million.

After the business failed and was taken over by its bankers, Hindelang sued the defendants alleging that they defrauded him “by concealing a perilous and ultimately failed plan to take Pacific Coin public.” The investors countersued, accusing Hindelang of committing fraud and costing them their combined $26 million investment in Pacific Coin by concealing his past drug-related crimes and on-going exposure to federal drug trafficking laws.

Mr. Margulis testified as to the market that would have existed for Pacific Coin, the availability of transaction financing and the diminished value of the Company and its assets, as of the transaction closing date, under the presumption that all facts about Mr. Hindelang’s past and continuing liabilities had been fully disclosed at that time.

On July 30, 2002, the jury found the defendants liable and awarded the plaintiffs $78 million. On September 12, 2002, Judge Chalfant dismissed the verdict against the defendants writing that it was “an immutable fact established by over-whelming evidence that Hindelang defrauded” the investors by failing to disclose his criminal convictions, his negotiations with federal authorities to forfeit drug proceeds and the fact that Pacific Coin may have been founded with drug money. The investors “never would have invested $26 million in Pacific Coin had they known the truth.”