Tuesday's Wall Street Journal was not one that Mario Gabelli, one of the lions of the money business, will be passing along to his friends unless he is seeking their advice as to whether he should initiate action against the paper. The article in question reports on a civil case brought against Gabelli and some of his business colleagues. The issue in the case is whether the defendants falsely claimed to be small businesses when bidding in the auction conducted by the FCC years ago for pieces of the radio spectrum for cellphone services.
Being recognized as a small business in the auction conveyed two considerable benefits to the winning bidders: a 25% discount from their bid price and a low-interest loan. The suit alleges that Gabelli or his affiliates really controlled these small bidders even though Gabelli owned 49.9% of the company. Considering that none of the majority owners had any experience in the cell phone business nor did they put up the majority of the money, one can assume that they were grateful to Mr. Gabelli for letting them in on a good investment.
How good an investment? One firm paid $12.9 million of its $17.2 million bid and sold its licenses a year later for $98 million; the problem for the majority owner here was that, through fees and its share of the company, Gabelli walked away with 75% of the deal. Another of the firms sold its licenses for $144 million for which they had paid $18.9 million. Not bad for people with diverse backgrounds - aerobics instructor, administrative assistant, property manager, basketball player, accountant - totally removed from the cell phone business.
The evidence that has been unsealed in this case, which was filed in 2001, includes internal notes and legal memos which on the surface certainly lead one to believe that not everything was on the up and up. Gabelli claims that the suit was filed purely as a way to extort money from him. He may be right, but sometimes one evil action leads to the uncovering of other evil actions.
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