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Verizon Fails to Collect $14.2 Million Receivable.

|Includes: CLST Holdings, Inc. (CLHI), VZ

I first became aware of a claim that Verizon had failed to collect a $14.2 million receivable from the company Cellstar in early 2009. It was a rumor. Now, there is some proof.

Verizon was formed in 2000 with the merger of Bell Atlantic and GTE.

In 2000, Cellstar was a distributor of cellular phone handsets and accessories.

In 2007, Cellstar sold its assets and Cellstar shareholders voted to dissolve Cellstar and receive the cash proceeds.

Years passed, yet a $14.2 million payable remained on Cellstar's books.

Note how the language in the SEC filings changed:

October 2007: “Included in accounts payable at May 31, 2007, is approximately $14.2 million associated with liabilities from which the Company expects to be absolved in the liquidation process where net operating loss carryforwards will be used to offset any tax liability associated with the debt relief.”

October 2009: “Included in accounts payable at August 31, 2009, is approximately $14.2 million associated with liabilities which accrued in periods 2002 and earlier, and which has been in dispute since 2001. The Company now believes that the statute of limitations on this trade payable may have expired. The Company is reviewing these liabilities, and considering appropriate steps to resolve them. In addition, the Company has contacted the vendor in question several times during the second quarter of 2009 regarding this matter with no results.”

The 2007 SEC filing is wrong. The negation of the payable appears unrelated to the dissolution, rather, it was a waiting game, for the perceived statute of limitations to expire.

Cellstar never explained the specifics of this notation, at least not in the SEC filings. There may have been selective disclosure.

In a recent news article, the former CEO of Cellstar stated he became aware of the payable in 2005, after he had left the company, and had contacted the SEC. 

Two questions.

First, will Verizon attempt to collect this payable?

Second, is there anything to collect? Cellstar no longer has $14.2 million in cash. Rather, the cash was spent to purchase receivables in late 2008 and 2009, at the height of the financial crisis. Some of those receivables were owned by Fair Finance, now in bankruptcy.

Fair Finance is an interesting saga itself. The company was raided by the FBI in November 2009, and the Chairman of Cellstar is also the co-owner of Fair Finance.

Background on the Verizon payable and other issues on Fair Finance available at Fair Finance Investors.

Disclosure: No current ownership of CLHI or VZ.