Whatever happened to ... Fall of the House of Philip

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Courtesy of EcoLog Environmental Resources Group

In December 2007 Robert Waxman, a former Philip Services Corp. (PSC) executive in charge of the scrap metal recycling division in Hamilton, Ontario, reached a settlement with the Ontario Securities Commission (OSC) that included a 20-year ban from serving as an officer or director of a public company, a 10-year ban from trading in securities, and a fine of $125,000 towards the OSC's costs. The agreement ended almost a decade of investigation and maneuvering between the parties, although a trial over criminal charges against Waxman remains scheduled for next year.

In addition to being investigated in relation to the problems at PSC, Robert Waxman was a witness for his father Chester Waxman's side in a significant civil lawsuit -- the longest in Ontario history -- brought by Chester's brother Morris and Morris's son Michael who claimed, successfully, that Morris had been defrauded of his rightful share to half of I. Waxman and Sons in a multi-year, multi-million-dollar scheme that also excluded Morris Waxman from the proceeds of the sale of the business to (what became) PSC. Robert Waxman testified on behalf of his father Chester Waxman in the case that his side eventually lost.

Waxman was a key figure in the collapse of PSC after it revealed in early 1998 that it couldn't find $88 million worth of recycled copper; its shares tumbled from a peak of $27.90 to penny-stock levels. Around that time the company became embroiled in a financial scandal shortly after completing a US$364-million share offering. Waxman was relieved of his duties in October 1997, but PSC's board wasn't told until after the share issue. The company later restated its 1995 and 1996 financial results, admitting to losses of $16.8-million. The OSC revealed that the company knew about problems as early as September 1997 but didn't tell investors until January 1998, weeks after the new stock issue.

Waxman was not the only target of the OSC, which had laid a complaint in August 2000 against the company and senior executives (founders Allen and Philip Fracassi, plus vice-presidents Marvin Boughton, Graham Hoey, John Woodcroft and Colin Soule) for failing to make full disclosure. The OSC dropped allegations against the company in April 2007. The Fracassi brothers settled with the OSC in March 2006 and were fined $100,000 each and barred for 12 years from serving as an officer or director of a public company. Woodcroft and Boughton were banned for 10 years, while Hoey was banned for five years. Each also agreed to pay $100,000 toward the cost of investigation. Soule, who settled the charges against him separately, was banned for three years and paid $50,000.

Philip Services emerged from bankruptcy protection on January 7, 2004 and its head office is now in Houston, Texas. A series of executives headed up PSC before a consortium of lenders that includes various banks and corporate raider Carl Icahn eventually gained control of the company and restructured most of the debt as equity. But shareholders in the predecessor company saw their shares watered down to the extent that a share that traded

at that time in the single digits would have to rise in value to $7,000 to regain the stock's zenith in 1997-98.

Difficulties at the company continue, and the company never returned to its glory days. Large pieces of the former billion dollars worth of assets have been sold, such as the Taro industrial landfill facility near Stoney Creek, which was bought by Newalta Corp. -- one of the industry's new consolidators. PSC sold Recyclage d'Aluminium Quebec Inc. to Berzelius Umwelt-Service, AG of Duisburg, Germany, for approximately US$10-million.

More recently, auditors Deloitte & Touche LLP agreed to pay US $50.5 million as part of a settlement of a class-action suit filed by PSC shareholders over its role in overseeing the company's books. It's believed to be the largest settlement ever paid by a Canadian auditing firm in a securities class-action suit. Part of the settlement includes more than $18 million to be paid by the company's former executives, including the Fracassi's, although it's believed the money will be covered through liability insurance.

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