The Jan. 23 announcement that Jared “Jerry” Abbruzzese had resigned as chairman of the board for TerreStar Networks Inc. and chairman of TerreStar Global Ltd. coincides with reports that the FBI is investigating his relationship with a New York state legislator.
Robert Brumley, president and CEO of TerreStar parent company Motient Corp., said the timing and announcement of Abbruzzese’s resignation “has nothing to do” with any legal situations. Abbruzzese had served as a director of TerreStar since 2002.
But an expert familiar with the situation said while the issues under investigation are not related directly either to TerreStar or Motient, the FBI investigation played a role in Abbruzzese’s resignation. “That was part of it; he comes with some baggage,” the unidentified source said.
 
Government Investigations, Business Complaints

In December, New York State Senate Majority Leader Joseph Bruno acknowledged he was being investigated by the FBI for what he described as his "outside business interests." The FBI declined to confirm or deny if there was an ongoing investigation, but published reports out of Albany and New York have detailed allegations concerning the 77-year-old Republican’s connection to Evident Technologies, a company to which Bruno reportedly steered $500,000 in state grants. Abbruzzese, who resides in Albany, is a cofounder and former director of Evident. Abbruzzese and Wayne Barr, a former co-chairman who currently sits on the board of Evident, are described as personal friends of Bruno who share the legislator’s avid interest in horse racing. Barr, a business partner with Abbruzzese in other ventures, had served as an appointee of Bruno’s to the New York Racing Association’s board of trustees until last year.
In December, Abbruzzese left Empire Racing — a New York-based thoroughbred racing consortium which he helped form. In a statement, Empire said Abbruzzese “decided to leave the Empire Racing board, citing a distraction created by inquiries into activities unrelated to the company.” Abbruzzese had led efforts to raise $3 million to fund the organization, which is competing to run state-owned racetracks at Aqueduct, Belmont and Saratoga.
Abbruzzese also is under investigation by the New York Temporary State Commission on Lobbying for furnishing aircraft to Bruno several times for political, fundraising and other trips, including one arranged by Barr for a tour of horse farms in Kentucky. A Dec. 31 article in the Albany Times-Union reported that Abbruzzese is under investigation for paying Bruno “hundreds of thousands of dollars in consulting fees. Interviews and a review of court documents reveal that his business dealings have included accusations of fraud and deceit, and even a multimillion-dollar judgment that threatened to take his home until that ruling was reversed.” The paper added that while “the entrepreneur has been dogged by complaints of deceiving stockholders and fleecing investors, none of those complaints has ever been sustained in court.”
A December New York Times article reported that, along with Bruno’s having flown on Abbruzzese’s private jet “at least half a dozen times,” the state senator controlled a campaign committee to which two of Abbruzzese’s companies contributed more than $118,000; that Abbruzzese’s wife bought property for $90,000 from a group involving Bruno; and that Bruno bought 2,000 shares in Tejas Inc., a small Texas securities brokerage.
Tejas also was mentioned in an August 2005 complaint filed against Motient by its largest shareholder, Highland Capital Management, which is owned and operated by James D. Dondero, at the time also a member of Motient’s board.
Among the complaints were that in 2002, while Abbruzzese was a director at Motient, the company hired Abbruzzese’s Albany-based consultancy, Communication Technology Advisors (CTA), to provide financial advice to Motient and that two years later, CTA advised Motient’s board to hire Tejas to raise capital. The complaint also alleged that Abbruzzese failed to disclose owning options to buy 100,000 shares of Tejas. Those shares underlying Abbruzzese’s options appreciated 900 percent after Tejas’ profits jumped more than 2,600 percent based on fees and warrants paid by Motient.
Additionally, in 2005, Motient appointed a Tejas director and shareholder, Barry A. Williamson, to its board two months before Tejas announced it was buying CTA for $65 million. Abbruzzese later was appointed Tejas’ vice chairman, and CTA has since received more than $3 million in fees and tens of millions of dollars worth of warrants to buy Motient stock.
The complaint, filed with the Chancery Court of Delaware, was dismissed in a 22-page decision rendered in March 2006 after the court ruled that Highland failed to produce sufficient evidence for judgment.
Federal officials, however, soon took note. A subpoena disclosed in December revealed that the U.S. grand jury investigating the dealings between Abbruzzese and Bruno has been taking testimony since at least April.
“I get the impression that Mr. Abbruzzese’s becoming radioactive,” opined a second source familiar with the investigation.

Planned Departure

Brumley described the announcement of Abbruzzese’s resignation as having been in the works for months, despite the day-after announcement.
“Jerry’s departure to the European company has been planned since last November for TerreStar Global,” Brumley said. He added that the delayed handling of the announcement was his fault. “We just didn’t tell the whole story,” Brumley said. “That’s a mea culpa on my part.”
Abbruzzese will be joining David Grain — who resigned from Motient’s board of directors Jan. 19 — on a board of advisors being organized for TerreStar Global. The subsidiary, majority-owned by Motient, will be independent of TerreStar Networks operations in the United States, though “Jerry is going over to do the same thing” in Europe as he had for TerreStar, Brumley said.
Motient/TerreStar spokesperson Julie Cram described TerreStar Global as “a development-stage company. We are a Bermuda-registered company and are in the process of staffing and setting-up a London headquarters to support our worldwide efforts,” she said.
Motient announced Jan. 25 that William Freeman would replace Abbruzzese as chairman of TerreStar Networks.
“Bill’s credentials are impeccable,” Brumley said, adding that Freeman would instill among investors “the kind of confidence as a steady hand who knows how to run a company.”
Freeman has served on TerreStar’s board of directors since May 2005. He also is on the boards of CIT Group Inc. and Value Added Communications Inc. From 2004 to 2005, he was the CEO of Leap Wireless International Inc. and previously been a senior executive at Verizon, president of Public Communications Group and president and CEO of both Bell Atlantic-New Jersey and Bell Atlantic-Washington D.C.

Problems For TerreStar?

While refraining from specific comment about Abbruzzese, analyst Marco Caceres of the Teal Group said “for the system itself, it’s not good news. … My understanding is that the mobile communications market is pretty competitive and kind of a niche market. It’s not one that I’d say was certain to be a profitable business.”
An expected market boom had been expected in the early part of the decade but “didn’t happen, and it didn’t happen partially because a lot of the companies went into bankruptcy and a lot of investors lost money,” Caceres said. “There were other reasons, too — overcapacity on the satellites, etc., but whenever you have some negative publicity or a scandal, it tends to drive away investors.”
Brumley said the changes were not expected to affect the schedule for the launch of TerreStar’s next-generation, communications network. In November, TerreStar Networks signed a contract with Arianespace for the launch of its TerreStar-1 satellite in late 2007.
Caceres noted that “this is a relatively new program – the fact that there’s a signed contract for launch services seems to be for real. But contracts get cancelled all the time. If it gets tied to an ongoing scandal, it may scare investors.
“When you add that it’s a relatively uncertain market, you don’t need a scandal,” Caceres said. “Some people may look into it a little closer, see how much one might have to do with the other or not, and decide to still invest. But a lot won’t: If they think a former chairman is involved in some shady stuff, it’s not good.
This is a new program, the investment dollars are just starting to flow back in, and there are some emerging [initial public offerings]. This would not be a good time to get involved in a scandal.”