A Superior Offshore International Inc. bankruptcy committee accused four former managers in a lawsuit of taking millions of dollars from IPO proceeds while the company was short of cash.
Superior, which provided subsea construction and commercial diving services to the energy industry, ceased operations and filed for bankruptcy in 2008, a year after its initial public offering. The bankruptcy committee accuses the managers of diverting proceeds from the IPO, leaving the company with $17.9 million in working capital and not the $45 million it needed to stay afloat, according to the complaint filed yesterday in federal court in Houston.
"The defendants, however, did not fare so bad," the Post- Confirmation Equity Committee said in the filing. "In total, they walked away with nearly $75 million from sales of Superior stock."
The defendants in the complaint are Louis E. Schaefer Jr., founder and former chairman; James J. Mermis, who was president and chief executive officer; R. Joshua Koch Jr., the former executive vice president, general counsel and secretary; and Roger D. Burks, the ex-chief financial officer. Each lives in the Houston area and left the company before it collapsed.
The defendants filed a joint request yesterday for the committee's lawsuit, which was filed on behalf of the company, to be thrown out. The managers already have "each defended and settled adversary proceedings" brought by Superior's plan agent and a shareholders' securities class action, their lawyers said.
"Those proceedings all made the same or similar claims," the managers said in their filing. The new lawsuit "seeks to take another bite at the apple," they said.
A federal judge rejected certification of a class-action, or group, lawsuit against the managers, said Michael Biles, a lawyer for Mermis and Burks. That ruling led the managers to settle the investors' complaints for $1.9 million, Biles said today in a phone interview.
"Superior just had a short-term liquidity crisis," caused by a combination of factors, that overwhelmed the company in the year after the IPO, Biles said. Superior's largest deepwater vessel experienced cost-overruns and delays during an overhaul, while a major client refused to pay a $20 million bill and supplemental funding became unavailable in the bond market, Biles said. Each of these risks was disclosed in the company's prospectus, he said.
"All of the shareholders got a distribution of $2 to $3 a share, and all of the creditors were paid off 100 percent," Biles said. "Quite frankly, this lawsuit is an attempt to get the remaining proceeds of the insurance policy."
In one internal e-mail cited in the committee's complaint, Burks asked Schaefer not to take $25 million in proceeds from the Lafayette, Louisiana-based company's IPO. Schaefer refused, according to the complaint. That "reflects that the defendants were grossly negligent in authorizing Schaefer, Mermis and Koch to loot Superior in the IPO," the committee said in the complaint.
Biles said the managers didn't do anything wrong. "The allegation is they left the company without enough cash from the IPO'' to fund operations, he said. "That analysis may be correct in hindsight. But at the time, the company's directors fully thought that $20 million or so would be sufficient.''
Tony Visage, who represents Schaefer and Koch, said in an e-mail that the defendants deny the allegations in the complaint.
The case is Superior Offshore International Inc. v. Schaefer, 4:11-cv-03130, U.S. District Court, Southern District of Texas (Houston). The bankruptcy case is In Re Superior Offshore International Inc., 08-32590, U.S. Bankruptcy Court, Southern District of Texas (Houston).
Source: Bloomberg Businessweek