Shenanigans Alleged in Corporate Takeover

PORTLAND, Ore. (CN) - Cae, a Canadian manufacturer, claims Three Cities Research juggled its own books to hide earnings and duck millions of dollars it owed for acquiring of Cae.

Three Cities agreed to buy Cae for $64 million in 2002, according to the federal complaint. The purchase agreement called for Three Cities to pay $20 million at closing, while the remaining $44 million could be reduced if Cae failed to meet specific earning goals for the next 3 years. The agreement excluded acquisitions, transfers between Three Cities' various operating companies, mergers, and changes in accounting practices.

Cae claims Three Cities used shell corporations with overlapping officers and directors to transfer assets away from Cae; manipulated Cae's accounts, and made up retroactive obligations to make it look like Cae was making less money than it actually was.

Three days before the end of the 3 years, Three Cities claimed that it owed none of the remaining $44 million, because Cae had made only $21 million during the 3 years, according to the complaint.

Cae claims that Three Cities hid $22 million in management fees, bonus awards and bogus payments. It claims that Three Cities owes it at least $32 million.

In 1999, Three Cities Research tried to buy up the largest manufacturers of building materials in the industry, the lawsuit states. Three Cities bought three American manufacturers before it bought Cae, and used the same fraudulent practices during all four sales, according to Cae's racketeering lawsuit.

Cae's complaint cites a lawsuit filed by Three Cities' former accountant in 2006, claiming that it engaged in illegal business practices similar to those Cae describes allegations.

Cae demands treble damages of $97 million. It is represented by Peter Richter with Miller Nash.

Here are the defendants: Three Cities Research Inc., Three Cities Fund III, TCR Friends III, TCR Co-Investors III, TCR GP LLC, Jeffrey Darbut, Christopher Baltes, J. William Uhrig, Willem De Vogel, Federico Schiffrin, Shawn Casey and Thomas Weld.

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