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Business Observer Friday, Oct. 22, 2004 17 years ago

International Intrigue

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Tampa partnership tries to build an electrical power plant in Iraq while dealing with allegations of kickbacks and bribery.

International Intrigue

Tampa partnership tries to build an electrical power plant in Iraq while dealing with allegations of kickbacks and bribery.

By David R. Corder

Associate Editor

Almost a year ago, a British group contacted Jaffrey, N.H-based Foster Power Generation Ltd. about costs for gas-powered turbine engines. The group needed the machinery for power plant development in Iraq. Foster Power vice president JoAnn Quinn Foster sensed a business opportunity.

Foster formed a Tampa-based venture with Minnesota businessman Steven Thompson, a business acquaintance, to make an independent bid for some of the nearly $19 billion being spent to reconstruct the war-torn Middle East nation. The partners chose Tampa to launch Foster-Thompson LLC primarily because of Floridais corporate-friendly tax policies, Thompson says.

But there was another reason why Foster chose Tampa as a headquarters site. She hired her son, Tampa attorney Walter H. Foster IV, as the ventureis general counsel. Heis a former assistant Hillsborough County state attorney who ran unsuccessfully in 2002 for circuit judge. Since then, he has practiced law as a solo practitioner.

In April, the venture produced big results. It won a competitive-bid contract to build a $24 million electrical power plant in the southern Iraqi city of Samawah. While JoAnn Foster managed fiscal affairs, Thompson used his contacts to secure construction materials and hire subcontractors. He supervised the site work.

Within months, however, the venture deteriorated into a partnership squabble that spewed allegations of bribery, kickbacks and embezzlement. Each partner complained to the now-dissolved Coalition Provisional Authority (CPA), the U.S.-backed entity the Bush administration created to oversee Iraqis political, economic and social reconstruction efforts. The CPAis inspector general (CPA-IG) division launched confidential investigations into the allegations just about the same time the division released an audit that reported concerns over the mismanagement of Iraqi reconstruction funds.

However, nothing in the July 30 audit report specifically cited any one of the reconstruction contractors, including Foster-Thompson, with funds mismanagement. In an appendix to the report, the CPA-IG simply listed Foster-Thompson as one of dozens of companies that had received money from the U.S.-controlled Development for Iraq Fund (DIF).

No one with the CPA-IG or the Iraq Project and Contracting Office (PCO), the coalition agency that awards reconstruction contracts, would talk to GCBR about any investigation into any Iraqi projects. Such investigations are classified as confidential, says Leland Bettis, who works in the CPA-IGis Washington, D.C.-area office.

iIf there were complaints, we obviously would not be talking about them,i he says.

And Bettis expressed concern about any talk of links between the companies listed in the appendix of the July 30 audit report and allegations of funds mismanagement. He says the appendix contains only a list of companies that received contracts in excess of $5 million from the $18.4 billion Congress allocated to the DIF.

iThat may or may not connect to a specific project,i Bettis adds.

Threats and counter threats

On July 14, JoAnn Foster met with Thompson at the four-room suite she rents at the Four Seasons Hotel in Amman, Jordan. In correspondence that recalls the substance of the meeting, she told Thompson someone accused him of accepting bribes and kickbacks. She wanted him to sign an ethics statement acknowledging his and the partnershipis responsibilities under the U.S., Foreign Corrupt Practices Act. Thompson refused to sign it. He says the letter amounts to nothing more than a false admission of guilt.

Six days later, Walter Foster sent Thompson a demand letter. The letter restated his motheris concern about alleged bribery and kickbacks. It also demanded he produce all documents related to a General Electric Frame 6b gas turbine purchased for the Samawah project.

The letter said: iIf you fail to produce the required documents within the requested time frame, your conduct will be reported to the U.S. Department of Justice and the Federal Bureau of Investigation.i

A day later, Thompsonis legal counsel, Minneapolis attorney Karl L. Cambronne, responded to Walter Fosteris letter.

iIt is apparent to the casual observer that you and your son are attempting, in rather transparent fashion, to deprive Steven Thompson of his rightful share of the Samawah contract now in effect,i the Chestnut & Cambronne partner wrote in the July 21 letter to JoAnn Foster.

Cambronne also advised the Fosters he planed to contact the CPA, the PCO and the Iraqi Ministry of Electricity. iIn other words, Mr. Thompson calls your bluff,i the attorney wrote.

Two days later, Walter Foster responded with another letter. Foster wrote he and his mother already had reported the allegations against Thompson to the agencies Cambronne mentioned in his July 21 letter. iTherefore, your threats to go epublic are of little import,i i Foster wrote.

The July 23 letter Foster sent also repeated the demand that Thompson return the gas-turbine documentation. He wrote the project would continue without Thompsonis involvement.

iFinally, Mrs. Foster has no desire to meet with Mr. Thompson now or in the future,i Walter Foster wrote. iHis association with this project has ended. When the contract is completed he will receive his share of the profits.i

CPA-IG investigations

On Aug. 27, CPA-IG investigator Holly A. Adams issued a report about the complaint Thompson filed against the Fosters. A copy of the report supplied to Thompson and his attorney indicates the Fosters learned about the alleged kickbacks from one of their suppliers. It mentions they reported their concerns to the CPA-IG and to the office of Paul Bremer, the former head of the CPA. The report also referred to a separate investigation into the Fostersi allegations and a pending draft report, which is classified as confidential and unavailable to the public.

But Adams offered one conclusion in her report: iAccording to the evidence (or the lack of evidence) obtained, the allegations of soliciting bribes from suppliers are not substantiated.i

The report apparently didnit satisfy the Fosters. On Sept. 1, Foster-Thompson LLC sued Thompson in the U.S. District Court, Tampa, on charges of conversion of corporate assets, breach of fiduciary duties, tortuous interference with contractual and advantageous business relationships and fraud in the inducement-rescission.

The Fosters retained Carlton Fields PA attorneys John Burnett and Steven C. Dupre to litigate the claims against Thompson. Besides Cambronne, Thompson retained as local counsel Christopher C. Casper and John A. Yanchunis Sr. of Tampais James Hoyer Newcomer & Smiljanich PA. (That firmis partner Greg Kehoe is assisting with the prosecution of Saddam Hussein for crimes against humanity.)

An effort by GCBR to reach the Fosters for comment through Walter Fosteris Tampa law office was unsuccessful. Documents show the two frequently travel to the Middle East to oversee business matters.

While the complaint restates the accusations of kickbacks and bribery, it also raises other allegations. It accuses Thompson of the unauthorized use of at least $140,000 in partnership assets.

iInstead of devoting his time and attention to the project, (Thompson) spent his time selling, attempted to sell, brokering or attempting to broker the sale of power generation equipment and other high-voltage electricity components to third parties for use in other electrical projects both in Iraq and the United States,i the complaint states. iThose efforts were not related to the project and instead were for his own personal profit. The LLC is informed and believes, however, that he used LLC funds to pay for and cover some or all of his various expenses incurred engaging in those non-project, non-LLC activities.i

Within three days, Thompson answered the Fostersi complaint, counterclaimed against Foster-Thompson and filed a third-party complaint against the partnership, JoAnn Foster and her son. Thompson denied all of the Fostersi allegations and counterclaimed against them on charges of fraud, conversion and breach of fiduciary duty.

In his complaint, Thompson claims the Fosters formed a new operating entity, Foster Group LLC, in a plan to deprive him of his interest in the power plant partnership. State corporate records show JoAnn and Walter Foster formed Foster Group LLC in June, a month before they asked Thompson to sign the ethics statement.

iIt is expected that the completion of the contract for the Samawah electrical facility will result in $5 (million) to $7 million of profit for Foster-Thompson LLC,i Thompsonis complaint states. iThe conduct complained of herein is designed to obtain for Foster all the benefits associated with the contract notwithstanding the obligation to divide profits 50/50 with Thompson and to otherwise deprive Thompson of his roll as an officer, member, management and employee of Foster-Thompson.i

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