10. Assignment of Proceeding
Timothy Alan Simon is the assigned Commissioner and Myra J. Prestidge is the assigned ALJ in this proceeding.
1. Alliance Group Services Inc. (AGS) is a Delaware corporation with its principal place of business located in Westport, Connecticut.
2. AGS provides service in California solely on a wholesale basis to other long distance companies, pursuant to its CPCN authorizing the provision of limited facilities-based and resold inter-exchange services.
3. AGS is a wholly-owned subsidiary of AGS Acquisition, which is also a privately held corporation.
4. AGS Holdings is a privately held company, which before the transactions described in this decision, held an 85 percent ownership interest in AGS Acquisition.
5. The majority of the shares of AGS Holdings are owned by the SMC 2001 Trust (Coughlin Family Trust), an irrevocable family trust of which Sharon Coughlin, the spouse of Thomas M. Coughlin, is trustee.
6. The remaining shares of AGS Holdings are owned by five individuals who are unrelated to the Coughlin family.
7. Thomas M. Coughlin is the former chairman of AGS.
8. Coughlin was the Chief Executive Officer of Vista Group International, Inc., doing business in California as an interexchange carrier known as Vista Communications (Vista), and the Coughlin Family Trust was the majority stockholder of this company.
9. In D.01-09-017, the Commission imposed sanctions against Vista in the amount of $7 million for failing to adequately supervise its telemarketers, so that thousands of customers switched long distance providers after receiving misleading solicitations and inadequate information about rates and switching charges.
10. To date, Vista's $7 million fine remains unpaid and is uncollectible.
11. DiPasquale is the President and CEO of AGS.
12. DiPasquale has managed the operations of AGS since late 2004.
13. Before the transactions described in this decision, DiPasquale held a 15 percent ownership interest in AGS Acquisition.
14. As a result of the transactions described in this decision, DiPasquale now owns 100 percent of the stock of AGS and AGS Acquisition.
15. The Commission has previously found AGS' current management, including DiPasquale, fit to manage AGS in D.07-04-037.
16. On December 29, 2004, AGS filed an application for a CPCN, which was docketed as Application (A.) 04-12-029, in order to resolve a dispute with CPSD regarding whether AGS is required to have a CPCN in order to do business in California.
17. CPSD filed a protest to A.04-12-029 on January 26, 2005, after discovering that Coughlin was one of the owners of AGS, on the grounds that Coughlin is unfit to operate a telecommunications business in this state because of his previous management role in Vista.
18. On September 7, 2006, in D.06-09-009, the Commission approved the Settlement Agreement between AGS and CPSD, which resolved the issues in CPSD's protest in A.04-12-029.
19. The Settlement Agreement requires the Coughlin Family Trust to divest itself of the indirect control of AGS by filing an application to transfer the control of AGS Holdings or causing the transfer of control of one of its subsidiaries to an unrelated third party, by no later than one year after the date of the Commission's approval of AGS' application for a CPCN (April 12, 2007).
20. As required by the Settlement Agreement, Coughlin formally resigned from his positions as an officer and director of AGS Acquisition.
21. As required by the Settlement Agreement, Coughlin was removed from the AGS payroll in September 2006.
22. To date, Coughlin has not filed, on his own behalf or jointly with another party, an application for Commission authorization pursuant to Section 854 to divest the indirect interest of the Coughlin Family Trust in AGS, as required by the Settlement Agreement.
23. In March 2005, while still chairman of AGS, Coughlin borrowed between $900,000 and $1 million from Chrysalis in order to finance his acquisition of a company known as SwissFone, a business venture unrelated to AGS.
24. Without the knowledge of AGS management, Coughlin pledged 85 shares of AGS Acquisition (which amounts to an 85 percent ownership interest in the company) held by the Coughlin Family Trust to Chrysalis as security for the loan.
25. In January 2006, SwissFone ceased operations, and Chrysalis demanded payment of Coughlin's loan.
26. Coughlin did not repay his debt to Chrysalis.
27. In approximately January 2006, the shares in AGS Acquisition that were previously owned by the Coughlin Family Trust were transferred to Chrysalis, after Coughlin defaulted on his loan from Chrysalis.
28. The January 2006 transfer of Coughlin's shares in AGS Acquisition indirectly transferred control of AGS to Chrysalis.
29. Neither Coughlin nor Chrysalis applied for Commission authorization under Section 854 before transferring Coughlin's shares in AGS Acquisition to Chrysalis.
30. In October 2007, Chrysalis placed the 85 shares in AGS Acquisition acquired from Coughlin for sale at a public auction.
31. A copy of the notice of the public auction appeared in the New York Times on October 4, 2007.
32. The public auction was held on October 8, 2007.
33. DiPasquale participated in the auction through a representative and, as the successful bidder, obtained the 85 shares of AGS Acquisition previously held by the Coughlin Family Trust.
34. By purchasing the 85 shares of AGS Acquisition at public auction in early October 2007, DiPasquale acquired a 100 percent ownership interest in AGS Acquisition and complete indirect control of AGS.
35. Neither AGS nor DiPasquale applied for advance Commission approval under Section 854 for the indirect transfer of control of AGS from Chrysalis to DiPasquale.
36. On October 25, 2007, approximately two weeks after DiPasquale's purchase of the 85 shares of AGS Acquisition at public auction, AGS filed an amendment of this application, which sought Commission approval of the indirect transfer of control of AGS resulting from this transaction on a nunc pro tunc basis.
37. AGS management did not know that Coughlin had pledged his shares in AGS Acquisition as security for a loan from Chrysalis or that Coughlin had defaulted on his loan until shortly before Chrysalis placed the shares for sale at public auction.
38. By pledging his shares in AGS Acquisition as security for the loan from Chrysalis to further a business venture unrelated to AGS, Coughlin was acting to advance his own personal interests, not those of AGS.
39. Coughlin did not cooperate with AGS by complying with the divestiture requirements of the Settlement Agreement in an orderly way.
40. AGS attempted to cooperate with CPSD and the Commission by entering into the Settlement Agreement and attempting to secure the divestment of the controlling interest of the Coughlin Family Trust in AGS.
41. Based on the evidence in this case and Coughlin's previous record of violation of law and Commission orders, AGS management was not responsible for Coughlin's unauthorized transfer of control of the company to Chrysalis.
42. Based on the record, it appears that AGS learned that the 85 shares of AGS Acquisition formerly controlled by Coughlin were for sale within a very short time before the public auction occurred.
43. As a practical matter, even if AGS had been able to file an application for Commission authorization under Section 854 for DiPasquale to purchase the shares of AGS Acquisition before the public auction took place, there would not have been sufficient time for the Commission to act on the application before the public auction occurred.
44. DiPasquale's purchase of the shares of AGS Acquisition at public auction ensured that Coughlin would not regain control of AGS, as required by the Settlement Agreement.
45. DiPasquale's purchase of the shares of AGS Acquisition at public auction prevented the indirect transfer of control of AGS to a third party that may not have been qualified to manage AGS and may not have met Commission requirements for acquiring control of a telecommunications company.
46. Under the Settlement Agreement, AGS must submit progress reports to CPSD, which: a) list all of AGS' carrier-customers, and b) verify that each carrier-customer previously identified by CPSD as unlicensed has either a) verified its certification or b) had its service terminated by AGS. These status reports must be filed every six months until the divestiture of the Coughlin Family Trust's interests in AGS is completed.
47. Under the Settlement Agreement, AGS was required to file two status reports with CPSD, which were due on March 7, 2007 and September 7, 2007.
48. In a letter dated January 29, 2007, CPSD advised AGS that AGS' previous submittal of a list of carrier-customers in response to CPSD's data request satisfied the requirement for filing a list of carrier-customers as part of the March 7, 2007 status report.
49. CPSD's February 2, 2007 letter and subsequent correspondence with AGS did not direct AGS to file an updated list of carrier-customers that was current as of March 7, 2007.
50. Subsequent correspondence and e-mails between CPSD and AGS regarding the March 7, 2007 status report and the status of AGS' carrier-customers did not negate CPSD's statement in the January 29, 2007 letter that AGS had already satisfied the requirement for filing a list of carrier-customers in the March 7, 2007 status report.
51. Based on the statements in CPSD's January 29, 2007 letter, AGS had no notice that CPSD would later claim that AGS had failed to file a satisfactory list of carrier-customers as part of the March 7, 2007 status report.
52. AGS justifiably relied on CPSD's statement in the January 12, 2007 letter that AGS had already satisfied the requirement for filing a list of carrier-customers as part of the March 7, 2007 status report.
53. AGS substantially complied with the requirement for filing the March 7, 2007 status report pursuant to the Settlement Agreement.
54. AGS admits that it forgot to file the September 7, 2007 status report.
55. AGS did not file the September 7, 2007 status report until after CPSD protested this application and filed a data request asking for a list of CPSD's carrier-customers, over a month after the status report was due.
56. AGS' second status report, which was due on September 7, 2007, was filed on October 18, 2007, six days after the filing of CPSD's protest and data request.
57. AGS' failure to file the second status report on time violated the Settlement Agreement.
58. AGS was responsible for filing the second status report as required by the Settlement Agreement, whether or not AGS had had recent contacts with CPSD.
59. In mitigation, AGS admitted the violation, filed the second status report six days after CPSD issued the data request asking for a list of AGS' customer-carriers, and since all of the carrier-customers on the list were certificated, AGS' late filing of the status report did not deprive CPSD of information regarding non-certificated carriers.
60. AGS has adequate financial resources to pay a moderate fine.
61. The imposition of a fine of $2,500 is appropriate in order to deter future violations by AGS and others that result in an unnecessary consumption of CPSD's and the Commission's resources.
1. This is a ratesetting proceeding and no hearing is necessary.
2. Section 854(a) requires advance Commission authorization to transfer control of a public utility.
3. Under Section 854, in order to approve a transfer of control of a regulated utility, the Commission must find that the proposed transfer is in the public interest.
4. Section 854(a) does not authorize the Commission to approve transfer of control of public utilities retroactively or on a nunc pro tunc basis.
5. Any transfer of control of a public utility without prior Commission authorization is void under Section 854(a).
6. This application should be approved on a prospective basis because the transfer of AGS to DiPasquale is in the public interest and carries out the divestiture requirements of the Settlement Agreement.
7. This application should be denied to the extent it request retroactive or nunc pro tunc approval of the transfer of control of AGS to DiPasquale.
8. Since the Commission does not approve transfers of control on a nunc pro tunc basis, the indirect transfer of control of AGS to DiPasquale is void before the effective date of this decision.
9. Coughlin's transfer of control of AGS to Chrysalis without prior Commission authorization violates Section 854(a) and is void.
10. DiPasquale violated Section 854(a) by acquiring indirect control of AGS through his purchase of 85 shares of AGS Acquisition stock at public auction, without prior Commission authorization.
11. Section 2107 gives the Commission authority to impose a penalty of between $500 and $20,000 for violations of the Public Utilities Code or Commission Rules or orders by a public utility.
12. Under Section 2108, each day on which a violation of the Public Utilities Code or a Commission decision, rule or order continues to exist is a separate violation.
13. Under previous Commission decision, the need to effectuate a transfer quickly for business reasons does not excuse non-compliance with Section 854.
14. Under D.98-12-075, the Commission will consider the following criteria for determining the amount of a fine: (i) the severity of the offense, (ii) the conduct of the utility, (iii) the financial resources of the utility, (iv) the totality of the circumstances, and (v) the role of precedent.
15. Coughlin's previous transfer of control of AGS to Chrysalis in violation of Section 854 is a serious offense and harmed the public interest.
16. Under the unique circumstances of this case, AGS should not be fined based on Coughlin's violation of Section 854(a), based on his unlawful transfer of control of AGS to Chrysalis, because doing so would unjustly penalize AGS for the unauthorized actions of Coughlin over which AGS had no control; would serve no useful purpose; and would not deter future violations of Section 854(a).
17. The public and consumers were not harmed by DiPasquale's acquisition of indirect control of AGS without prior Commission authorization.
18. Based on the unique circumstances of this case, it would not serve the public interest or deter future violations of Section 854 to fine AGS based on DiPasquale's purchase of 85 shares of AGS Acquisition at public auction and his resulting acquisition of control of AGS without prior Commission authorization.
19. AGS' late filing of the second status report was not a serious violation, but harmed the public interest by requiring CPSD to expend its time and resources on enforcing this requirement, rather than on other matters important for the protection of consumers and the public interest.
20. AGS should be fined for its failure to file the second status report on time as required by the Settlement Agreement, because this violation of the Settlement Agreement, while not serious, harmed the public interest. The amount of the fine should be based on the criteria set forth in D.98-12-075.
21. The application of the criteria in D.98-12-075 to the facts of this case indicates that Applicants should pay a fine of $2,500 for the late filing of the second status report in violation of the Settlement Agreement.
IT IS ORDERED that:
1. Application 07-09-006, for authority under Public Utilities Code Section 854(a), to transfer control of Alliance Group Services, Inc. to Jess M. DiPasquale, is granted to the extent it requests authority effective as of the date of this order.
2. A.07-09-006 is denied to the extent it requests retroactive or nunc pro tunc authority for the transfer of control of Alliance Group Services, Inc. to Jess M. Dipasquale.
3. The previous transfer of Alliance Group Services, Inc., to Chrysalis Group, Inc., by Thomas M. Coughlin without prior Commission approval as required by Public Utilities Code Section 854(a) is void.
4. The transfer of control of Alliance Group Services, Inc. to Jess M. DiPasquale, effective today, satisfies the requirement of the Settlement Agreement approved in Decision (D.) 06-09-009, for the divestiture of the indirect controlling interest formerly held by the SMC 2001 Trust (the Coughlin Family Trust) in Alliance Group Services, Inc.
5. Based on the unique circumstances of this case, Alliance Group Services, Inc. shall pay no fine based on the transfer of control of Alliance Group Services, Inc. to Jess M. DiPasquale without prior Commission approval, in violation of Section 854(a).
6. Based on the unique circumstances of this case, Alliance Group Services, Inc. shall pay no fine based on the previous transfer of control of Alliance Group Services, Inc. to Chrysalis Group Inc., by Thomas M. Coughlin, former chairman of Alliance Group Services, Inc., without prior Commission approval as required by Section 854(a).
7. Alliance Group Services, Inc., and Jess M. DiPasquale shall notify the Director of the Commission's Communications Division in writing of the transfer of control, as authorized herein, within 10 days of this order. A true copy of the instrument(s) of transfer shall be attached to the notification.
8. Alliance Group Services, Inc., shall pay a fine in the amount of $2,500 for failing to timely file the status report due on September 7, 2007, as required by the Settlement Agreement approved in D.06-09-009. Alliance Group Services, Inc., shall pay the fine within 30 days from the effective date of this order by tendering to the Fiscal Office of the California Public Utilities Commission a check in the amount of $2,500 made payable to the State of California General Fund. Alliance Group Services, Inc. shall file proof of payment at the Commission's Docket Office within 40 days of payment.
9. Alliance Group Services, Inc. and Jess M. DiPasquale shall obtain Commission authorization as required by Section 854(a) before consummating the transfer of control of Alliance Group Services, Inc., to any other entity, and shall be subject to fines for any future violations of Section 854(a).
10. This order shall not be precedent in other proceedings involved alleged violations of Section 854(a).
11. Application 07-09-006 is closed.
This order is effective today.
Dated September 10, 2009, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
