A lawsuit accusing Jeb Bush and others of deceiving investors and ruining one ofthe "most promising small companies in America" is expected to be settled today for $15-million.
Florida's Republican candidate for governor won't have to pay a dime.
Neither will Paul G. Kahn, a Bush fund-raiser who transformed a Jacksonville credit-card protection company into Ideon Group Inc., and, along the way, spent at least $100-million on failed products and lavish overhead.
Nor Martin Siegel, a felon with ties to Ivan Boesky, who earned handsome fees as a company consultant.
Nor any of the other outside directors who, like Bush, were paid $50,000 a year to protect shareholder interests. One of those directors was Adam Herbert, now chancellor of the state university system.
Terms of the settlement, reached late last year, call for the $15-million to be paid to eligible shareholders by CUC International Inc., a global conglomerate that purchased Ideon in 1996.
Parties to the agreement will ask U.S. District Judge Michael Moore to approve it at a hearing this morning. If the judge agrees, all claims against the defendants _ who deny wrongdoing and call the suit frivolous _ will be dismissed.
"This was settled as a business decision," said Miami lawyer Carol Licko, who represents Bush and six other outside directors. "When CUC came in, they didn't care about the allegations or ferreting out the truth. It was, "Settle up and move on.' "
That's just what CUC has done. Before merging with another company last year, the direct-marketing firm agreed to buy Ideon for $375-million. As part of the purchase arrangement, CUC set aside an additional $125-million to settle pending lawsuits against its new acquisition.
It was a good deal for shareholders and an even sweeter deal for officers and directors, said one Wall Street analyst.
"Those directors should thank their lucky stars," said analyst John Westergaard, who began questioning Kahn's spending and accounting practices in 1995. "They got off easy."
Ideon, a publicly traded company started by brothers Peter and Steven Halmos in 1969 as SafeCard Services Inc., was no stranger to litigation. Peter Halmos, who left the company in 1992, alone sued it more than a dozen times in six different states. CUC settled with Halmos in June 1997 for $70.5-million.
That agreement paved the way for today's expected settlement of the class-action claim that Halmos and two other shareholders filed in Miami in June 1995. The complaint was filed six months after Bush and Herbert, then president of the University of North Florida, joined the board. The complaint accused Ideon managers, directors, lawyers and accountants of criminal racketeering by manipulating company stock prices for their own benefit.
The defendants were accused of leaking information to Wall Street analysts, using fraudulent accounting practices and deceiving investors by inflating profit forecasts on new products that flopped. Most of the alleged actions would have begun before Bush and Herbert joined the board.
Attorneys for the defendants contend in court documents that the allegations are false. There is, however, little question that the corporation Forbes magazine once hailed as one of the "most promising small companies in America" squandered an estimated $100-million under Kahn's leadership.
Credited for the successful launch of AT&T's Universal Card in 1990, Kahn was hired by the board of SafeCard in 1993 and later changed the company name to Ideon. His mission: turn the $200-million-a-year company into a billion-dollar one.
Backed by a supportive board, he started acquiring new companies and initiating new products _ without, the suit alleges, adequate research or market testing. Among the new ventures: a PGA Tour credit card for golfers and the Family Protection Network, which for a $250 fee promised to spare no expense in finding kidnapped children.
Despite multimillion-dollar advertising blitzes and start-up costs, both products bombed. The suit alleges that company officials concealed that fact when they projected rosy profits and asked stockholders to expand into Ideon in April 1995. Bush was a director at that time.
But Bush, whom Gov. Lawton Chiles narrowly defeated in the 1994 governor's race, said he did not know about the failures until the following month, when Ideon's stock plunged.
Noting that he joined the board well after the new products and their budgets were approved, Bush says he was dragged into the lawsuit solely because of who he is _ a gubernatorial candidate and son of former President George Bush.
Bush, in a 15-page explanation of his involvement with Ideon distributed to reporters in February, said he took immediate steps to remedy the company's financial problems.
Among other things, he said, he initiated major cuts in operating expenses, including pay cuts for directors and officers.
Bush also said he was recruited to the board by Thomas Petway, an Ideon director and prominent Republican businessman who, with Bush, owns a piece of the Jacksonville Jaguars franchise in the National Football League. He acknowledged that Kahn, at Petway's urging, held a fund-raiser for his 1994 gubernatorial campaign that netted almost $24,000.
Even so, when it became clear that Kahn"was creating problems for the company," Bush said, he supported the executive's February 1996 ouster and voted against his $2.5-million severance package. Bush also sought and supported the sale of Ideon to CUC.
Bush emphasized that he was not on the board when Kahn and company went on a spending spree, including leasing a corporate jet for $2.5-million a year and a skybox for $78,000 a year at the stadium where the Jaguars play.
Even with the lawsuit almost behind him, Bush is clearly worried about it tarnishing his reputation. He issued the 15-page explanation as a pre-emptive strike against what he expects will be distorted attacks by his chief Democratic rival, Lt. Gov. Buddy MacKay.
But the MacKay camp says the Ideon lawsuit wasn't even on their radar screen _ until Bush brought it up.
"We take Jeb on his word that he didn't know what was going on," said Doug Heyl, MacKay's campaign manager. "But it is rather interesting that he jumped on a company in so much trouble without looking at it first. Is that what kind of governor he would be?"