Each day here at ExecuCite we read the newswires looking for interesting news about public companies and their management teams to post for your review.
On November 10, 2005, I read that Terax Energy Inc (Terax) of Austin Texas has named a new CFO who will act as interim CEO until a new one is hired. Not so special, until I remembered that Terax had fired their CEO “for cause” last week.
Removing a CEO isn’t so unusual these days but the “for cause” part is. It seems that what was originally noted in the SEC filings was just one side of the story, the company’s side, of course. This one is shaping up to be a real “Dallas” or “Dynasty” episode.
In case you don’t have time to go into the ExecuCite company profile and read all the documents collected so far, here’s the overview.
Bill Rhea (J. William Rhea IV) was hired as the CEO of Terax effective June 1, 2005 and was given an employment contract. He was fired as a director on October 28th and informed he would be removed as CEO for cause on October 31st. The stated cause? His failure to perform his duties for the company as specified by the contract.
Now, Mr. Rhea contends thru his attorney (Kirk W. Evans) that his termination is based on trumped up charges after he revealed the results of his investigation of two company’s officers.
First, the VP of Business Development, Bill Chester. Mr. Rhea suspected that Mr. Chester was not a qualified person after he discovered inconsistencies. It seems that Mr. Rhea had reason to believe that this Bill Chester was also Billy Wayne Chester, a convicted felon. Convicted for bank fraud, money laundering, and who struck a plea bargain for five years probation after paying over $9 million in restitution. Interestingly enough, this guy was signing the company’s SEC filings.
Second, Board of Director member and outside counsel, Phillip Wylie. Mr. Rhea had concerns about Mr. Wylie after learning that Mr. Wylie had been accused of acting as counsel for an investment deal that turned out to be a Ponzi scheme. While Mr. Wylie was never charged as being an active participant in the Ponzi scheme, he was questioned about how could he not have known his clients were crooks.
I wonder if his investigation into Mr. Wylie was stirred by the Harriet Miers nomination. It seems that Ms. Miers was a managing partner at the law firm of Locke, Liddell and Sapp when Mr. Wylie was practicing there and handling the affairs of Ponzi schemers.
The company contends that it launched an investigation into Mr. Rhea after Mr. Chester discovered Mr. Rhea had written checks to himself, which the company describes as “Irregular”. Interestingly enough, the investigation committee was one member, Mr. Phillip Wylie, the director whose ethics were being investigated by Mr. Rhea.
Mr. Rhea through his attorney has also raised questions about Terax’s SOX violations in their 8-K postings about his removal as well as the resignation of Mr. Chester and another director, Mr. Rex White. SOX (Item 5.02(a)) requires that the removal or resignation of a director must be accompanied by any written correspondence regarding that action. No documents were originally filed by the company regarding Mr. Rhea’s side termination (8-k was amended to include Mr. Rhea’s attorney’s correspondence). No documents have been filed to date regarding Mr. White’s resignation after learning (according to Mr. Rhea) about the biographies of Mr. Chester and Mr. Wylie. Nor has the company published any documents about the resignation of Mr. Chester.
Since I started research on this company, I have reviewed the Terax SEC filings twice daily; Terax has not posted any documents in response to Mr. Rhea’s allegations. Interestingly enough, on Monday November 14, 2005, the company did post a 10Q NT (Notification of inability to timely file Form 10-Q or 10-QSB).
Stay tuned. It will be interesting to watch this one play out, in the courts, at the SEC, and perhaps litigation files, and hopefully, the newspapers.
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