By Corey Deiterman
By Corey Deiterman
By Corey Deiterman
By Chris Gray
By Chris Gray
By Chris Gray
By Chris Gray
By Corey Deiterman
They called it the Fire Sale. For weeks, the members of the skeleton crew that survived the mass layoff in November had been trudging to work, sitting at their desks, doing nothing except hoping that maybe a miracle would occur and the company might somehow rise from the dead. Finally, in an act of compassion on January 15, the human resources director issued a memo firing herself and everyone else.
Initially, employees signed forms -- they could take home an office computer or two, or three, which would be credited at $150 or $200 a pop against the weeks of back pay they would never see.
But the orderly transfer quickly devolved into a looting spree worthy of a war-torn third-world nation. Several employees and an investor helped themselves to servers and other high-priced computer equipment. Others ran off with antiques, artwork, rugs, furniture. Empty pickup trucks pulled up to the curb at 600 Jefferson and left a few minutes later, loaded. One enterprising worker removed a 300-gallon tropical fish tank from a wall; another scored an Indy-car replica go-cart the company had custom-built for a promotion. In the mad rush, trash cans were overturned and reams of paper scattered across the carpet.
In just a few days, the once-plush headquarters of Brittan Communications International were reduced to rubble. "It looked like a little tornado had gone through there," says former systems manager Toby Hynes. "Everything was ravaged."
BCI's ignoble end came as a shock to many who had intersected with the long-distance telephone company since its founding late in 1994: charities that received more than $1 million in donations from the company; vendors left holding more than $4 million in unpaid bills; regulators who were preparing to lower the boom on BCI for illegal business practices; and employees who felt their company was more like a family than a place to work. "It was really one of the most beautiful experiences of my life," says former public-affairs director Steve Long, who was laid off in September.
Not that the signs of impending disaster hadn't been flashing for months prior to the final collapse: bounced payroll checks, canceled credit cards, state and federal sanctions, periodic layoffs. But the company always seemed to rebound from the brink, and as late as December, before he holed himself up in his executive suite, CEO Jim Edwards maintained that renewed prosperity lurked just around the corner. "We were all told that the sinking ship would be righted," says John Walsh, a sales manager who ended up with three computers and a $17,000 hole in his pocket for expenses and back wages.
When the ship went down, it left more than $20 million in debts and a host of people searching for answers. The big question: Given that the company claimed more than $140 million in revenues over four years, what happened to all the money?
Edwards says BCI was victimized by misfortunes that couldn't have been predicted. Regulators unfairly charged the company with slamming customers (switching their long-distance carrier without permission), he says, and the penalties sent the company into a downward financial spiral from which there was no escape. "It created a debt we never intended to have," Edwards says. "It put us in a severe cash-flow bind from there on out."
Not everyone sees it that way. Former employees and shareholders describe a company with almost no fiscal controls, frittering away millions on private jets, inflated salaries and huge executive bonuses, failed side ventures, luxury office furniture and other excesses.
Even when the company was essentially insolvent, the spending continued. "In the beginning, it was champagne on a champagne budget," says Susie Taylor, one of the first people to hire on with BCI. "At the end, it was champagne on a beer budget."
The loosest wallet of all belonged to Edwards, whose hunger for the trappings of success seemed insatiable long after success turned to failure. Today, his company in ruins and his own financial footing extremely shaky, he's still driving the $140,000 Mercedes 600S originally leased by BCI. "Jim Edwards is a man of great appetites," says Steve Long. "He's the biggest spendthrift I've ever met in my life."
Huddling in a corner of Little Pappas restaurant on Shepherd in the fall of 1994, Jim Edwards cooked up his plan. The concept was simple: Buy bulk time from long-distance carriers and resell it to the public. BCI would just need to convince customers to switch their service from another company and then hold onto them, no mean feat in the cutthroat long-distance telephone world.
Edwards had the experience to know the idea had big profit potential. A native Houstonian who has never strayed far from home (he had an unremarkable college career at the University of Houston), Edwards dabbled in real estate and commodities trading before finding his niche in telecommunications. Beginning in September 1993, he worked an eight-month stint for another long-distance reseller, Heartline Communications, during which he says the company grew fourfold. After that he joined with three others and formed Telecommunications Company of the Americas (TELCAM) in Galveston.
The company was doing well after its first six months in business, he says, but his partners expelled him over "differences about taking money out [of the company], which I was opposed to."
TELCAM president Terry Miller attested to the nature of the disagreement but says Edwards has his sides confused. It was Edwards, he says, who proposed taking a loan out of the company, stating that his lawyer had determined it could be done legally. Miller declined. "It was not my concern whether it was legal or not," Miller says. "I did not consider that a good business move." An alarmed TELCAM board voted Edwards out of office and bought him out for $100,000.
Heartline would later have its own problems, coming under fire for slamming and incurring several hundred thousand dollars in fines and judgments before filing for bankruptcy. Edwards insists that Heartline took its wrong turn after he left.
But the talk at Pappas was of the future, not the past, and the future looked bright. Then-county attorney Mike Driscoll, a longtime friend of Edwards's, saw no reason why the ideas that had worked so well at Heartline and TELCAM could not be duplicated. When he heard his friend had been squeezed out of TELCAM, Driscoll says, "I immediately thought, if you can do it once, you can do it again." Since Edwards was in no position to fund the new venture, Driscoll agreed to help; he tapped friends and contacts for $83,000 and lent the company some personal cash to get it off the ground.
"I was broke," confirms Edwards. "Without Mike, there would have been no BCI."
Attorney Jim Evans, whom Edwards had hired to settle his dispute with TELCAM, joined the team. A blustery right-wing talk-radio host in his spare time, Evans handled the incorporation and other legal details. The three each claimed 300,000 shares, or 30 percent of the company's stock, for which they paid $1,000 apiece. Most of the remaining 10 percent was split among the other investors.
The partners chose a name, Brittan Communications International, which Edwards says was oddly practical: The company needed offices, and they'd been thinking of renting an old building off the Gulf Freeway that still sported a sign from the former occupant, Brittan Furniture. Just cut off the end, and the need for at least one major purchase would be precluded.
Eventually they chose digs closer to downtown, at 602 Sawyer, but the name stuck. They hired a sales and marketing chief, a computer guru and a small clerical staff, and installed a bank of phones. By March 1995 BCI was ready to hustle a few customers.
BCI borrowed its basic marketing strategy from Heartline, though the particulars have long been part of the industry's bag of tricks. With a new Ford Mustang as bait, BCI set up tables in shopping malls or at special events and offered customers a chance to win the car in exchange for switching their long-distance service. In a parallel program, sales reps placed sweepstakes boxes in stores, with the Mustang again the lure; customers filled out an entry blank and dropped it in the box, and the reps collected the forms, which also authorized a switch to BCI.
Again lifting a Heartline hallmark, BCI courted the low end of the long-distance market, people with incomes less than $35,000 a year. That demographic was neglected by the bigger players, often didn't appear on direct-mail lists and could best be reached in the field. "Our target group was not Mr. and Mrs. Middle-class America," says Michael Lydon, who managed sales operations in the Northeast.
To find them meant going to less-savory places that others preferred to avoid. "You'd find BCI in the worst malls in the city," says John Macauda, the Virginia sales manager who set up Mustang booths in several southeastern states. "That's what we were told to go after."
Though it took BCI several months to gear up, the plan was a smash success. By the end of 1995, BCI had taken in $6 million. The following year, billings increased to more than $42 million. "The car was the hook," says Stan Jaffe, a regional sales manager for Texas and other western states before he resigned last July. "It was beyond the average person. It was a dream."
Toking furiously on a cigarette, Jim Edwards recalls the glory days with a certain pride. A massive man who, by his own count, chain smokes five packs of Benson & Hedges Ultra-Light 100 Menthols every day, he noisily sucks in one lungful after another, then gasps out a grayish cloud. Occasionally he has to pause to let a choking spasm pass. The process is so disturbingly relentless, it's as if he's trying to cram as much nicotine in his body as possible before the Reaper catches up to him.
Edwards takes rightful credit for BCI's meteoric growth -- he made all the big decisions. Former vice president of sales Bill Jones describes the corporate structure as a "Mayan pyramid," in which the usual hierarchy prevailed until the upper-management level. "You got to a certain point, and everybody was on equal footing," says Jones. "Then waaaay at the top was Mr. Edwards."
As the customers rolled in and revenues swelled, the company added staff to handle the load and quickly outgrew its Sawyer offices. In February 1996 BCI doubled its Houston workforce. "We had people in closets, wires running all over the floor," Edwards chuckles. He cut a deal for the entire fifth floor of 600 Jefferson, and the operation moved to the new address in April. Eventually BCI would lease the sixth floor and part of the seventh, with an option for additional space.
The company's astonishing expansion left the employees feeling giddy, in part because they shared the spoils. Edwards liked to reward his people, who received better-than-average salaries and Cadillac benefits that included full health coverage, a generous leave policy, free parking and cheap long-distance rates. Quarterly bonuses extended to the lowest levels. When BCI reached a new sales milestone, Edwards would call everyone into a meeting room and break out bottles of Dom Perignon. "I really felt like the Lord was blessing the company," says Susie Taylor, a devout Christian.
Employees had another reason to feel good about their employer: BCI's stated mission included contributing generously to worthy causes. That commitment was set in stone; a clause in BCI's bylaws guaranteed that 2 percent of gross revenues would go to charity. "I thought, wow, this is an interesting company -- they're actually giving back to the community," says former administrator Barbara Harris. During her initial interview, she was impressed by a giant photo mounted on the office wall that showed Edwards presenting a $25,000 check to Barbara Bush for the Houston READ Commission.
Edwards again gleaned the idea from Heartline, which had an identical pledge to charity, designed to help business by creating a positive public profile (Heartline apparently fell far short of actually donating the 2 percent). Under public-relations director Steve Long, BCI handed out sizable grants to adult literacy, environmental and child abuse-prevention programs across the country.
Locally the company donated $58,000 to help renovate the Houston Fire Museum, funded the 1997 cleanup of Buffalo Bayou, underwrote the 20th anniversary celebration of the Houston Area Women's Center and sponsored the city's youth baseball program to the tune of $350,000. "They were very community-oriented," says city parks department spokeswoman Susan Christian, recalling that Edwards was personally involved in the sponsorships. "You truly couldn't have asked for a more enthusiastic fellow."
The prime beneficiaries of BCI's largess, however, were the three principal shareholders. Each received hefty salaries -- Edwards, $350,000; Evans and Driscoll, $250,000 -- and periodic five-figure bonuses. BCI leased the top-of-the-line Mercedes for Edwards; Evans got a BMW 750i, which lists for more than $90,000. For their offices, both Evans and Edwards chose ornate, hand-carved Prince of Wales desks -- two of the only three in the world -- that cost $21,500 apiece.
Driscoll, whose official title was "of counsel," collected his paychecks despite being a rare presence at 600 Jefferson. Barely able to meet his governmental duties due to an increasingly difficult battle with Parkinson's disease, he had little time or energy to spend on BCI matters and would show up only once a week to have lunch with Edwards. "I didn't do a lot," he admits. Driscoll nonetheless maintained an office there stuffed with $30,000 worth of furniture and antiques, courtesy of BCI. (The former county attorney denies he pulled in more than $125,000 in salary and says he can't remember any bonuses. But several employees who had access to payroll information confirmed the figures.)
The company spent extravagantly on other indulgences: The conference room featured a custom-designed table in the shape of the BCI flame logo made from three different hardwoods, surrounded by cushy leather chairs with the company name stitched on the back. Limousines were the preferred mode of travel; when employees attended a Houston Parkinson fund-raising gala featuring Muhammad Ali in January 1997, BCI hired two limos to transport them all of six blocks. Minority shareholders received 1996 dividend checks that doubled their investment. The company threw lavish parties, handed out American Express cards like souvenir pens and pumped cash into several spinoff ventures that appeared to be bottomless pits (see "Bad Cash Investments").
Most symbolic of BCI's high flying were the planes. Edwards signed a contract with Aviex Jet for the use of three executive aircraft, one of which came with its own flight attendant. The cost: $80,000 per month.
A few employees had reservations about the exorbitant outlays, but most just went along for the ride, racking up huge AMEX and cell-phone bills, buying unnecessary office accessories and generally living beyond their means. "Money was no object," says Susie Taylor. "It was almost like everybody thought they had a free license to spend, because the company would pay for it."
When Steve Long had to pick a place to award a Mustang to a lucky customer in California, he chose the Beverly Hills Hotel -- on Oscar night. "Why did I pick the Beverly Hills Hotel?" Long says with a laugh. "Because I wanted to see it."
Much of the waste was of the nickel-and-dime variety. Billy Stewart, a computer network administrator who worked at BCI for 16 months, says he installed at least 15 infrared remote-control CD-ROMs in computers at about $100 each. "There was no point," Stewart says. "It was just something neat to have."
Stewart also bought and loaded computer game software for Edwards, who was so taken by one particular multiuser adventure game that he ordered it set up for all the executives.
The name of the game: Doom.
The collapse began in February 1997, when monthly billing unexpectedly shrank by half. For a long-distance reseller to maintain a healthy checkbook balance requires a complex, delicate balancing of numerous creditors. These include the wholesaler, the billing company that handles the accounts and local phone companies such as Southwestern Bell that piggyback charges to the customers in their monthly statements and make the collections. Because these other companies often must be paid before the customers actually write their checks, another company must "factor" the bills, that is, essentially loan the reseller the money up front to pay the debts, then siphon off a portion of the revenues as they come in.
It remains unclear why the billing suddenly decreased, but the shortfall threw a major crimp in BCI's cash flow. Having squandered whatever reserves it might have accumulated, the company had to start juggling debts and fell further behind as the weeks passed.
Other accounts were in serious arrears. A major advertising campaign in the beginning of 1997 created a $750,000 obligation to the advertising agency Boswell & Partners, which paid up front for media buys. Other vendors accumulated past-due invoices. The Internal Revenue Service began inquiring about delinquent payroll taxes that would eventually climb to $1.5 million.
BCI's charitable giving program also lagged behind its mandate. In the spring Edwards instructed Steve Long to put a hold on any additional grants. Except for a handful of in-kind contributions, the 2 percent accrued in the books as a liability. Yet the company continued to tout its charitable work in promotional materials. "They were never in compliance," Long says. "I was always very concerned about that."
Meanwhile state regulators were growing increasingly uneasy with mounting consumer complaints that BCI had slammed customers. In signing up for a shot at the Mustang, many of the complaints charged, the customers were duped into changing their long-distance company. Others alleged they had never heard of BCI but had been slammed anyway.
The California Public Utilities Commission pounced first, ordering a halt to any further marketing in the state as of May 2. Texas authorities soon announced an investigation of similar complaints.
Edwards responded that the charges were unfounded. The entry forms clearly indicated in several places that signing up for the car also meant signing up with BCI. He also objected that the relatively small number of complaints (30,000 in California, out of 400,000 accounts) hardly warranted such a severe penalty, as BCI paled in comparison to other companies that routinely slammed customers without their knowledge. And BCI gladly credited anyone who squawked.
But regulators rejected those arguments, reflecting an increasing distaste for sweepstakes promotions nationwide. The moratorium in California would be the first in a series of enforcement hits BCI would take.
On May 15 BCI laid off 25 percent of its workers. For most of the employees, it was the first indication that anything was amiss. "It was shocking and upsetting to me," says Barbara Harris, who like everyone else was informed that the layoff stemmed from the California action. "When you lose a quarter of your business, you lose a quarter of your employees, was the rationale," Harris says.
That wasn't quite true, because California allowed BCI to continue servicing and billing its more than 350,000 existing customers. But the employees believed what they were told, that the setback was only a blip on the screen that would pass as BCI focused its marketing efforts elsewhere.
When the paychecks bounced a couple of months later, employees heard the same line. Edwards circulated a memo blaming the incident on a mixup between the billing company and the bank and requesting that everyone redeposit their checks, which cleared. Two weeks after that, the boss handed out a quarterly bonus. "Everybody was like, 'Whoa, the company's back,' " says Harris.
The bonus checks bounced. When replacements were issued, Harris ran to the bank and cashed her check immediately.
Others felt equally nervous about BCI's stability. After the company ran up a substantial debt to Drake Container Corporation and issued a couple of bad checks, Drake CFO Steve Winbigler went the same route as Harris. "Some of their bigger payments, I'd go straight to the bank and get a cashier's check," Winbigler says.
BCI's financial woes began to cause dissension in the ranks. Urging that the company declare Chapter 11 bankruptcy, controller Eric Doremus (Edwards's brother-in-law) resigned in May, fearing personal liability for the company's soaring deficits.
In September Jim Evans submitted his resignation. Edwards first said that the attorney just wanted to go back to private practice, but he later acknowledged that Evans, too, had brought up the subject of bankruptcy.
He resisted their advice. The new controller, Mel Cooper, crunched the numbers and concluded that a turnaround would come soon, Edwards says. (Cooper refused to comment). And he felt he owed it to his employees to keep BCI afloat as long as possible. "You counsel with everybody you can," Edwards says reflectively. "Some are going to say one thing, and some are going to say the opposite. Ultimately I was the one who had to make the decision."
By the end of 1997, BCI seemingly regained its equilibrium, at least according to official pronouncements. The numbers looked positive: Billing for the year exceeded the 1996 total, topping $47 million. Edwards even talked of taking the company public, a notion that would likely have elicited howls of laughter from Wall Street.
When vice president Bill Jones resigned in March, whatever illusions of fiscal health employees may have harbored were shattered. Jones took serious issue with BCI's management practices, but his concerns went unaddressed. "It was a total disagreement, on numerous, numerous things," he says, declining to cite specifics.
Jones says that, because facts about the finances were virtually impossible to come by, the best he could do was guess that maybe BCI ought to consider Chapter 11. "Clear-cut, solid information to say, 'This is what we should do,' was basically nonexistent," he says.
One of the things that most vexed Jones, according to sources, was the company's total inability to tighten its belt, a phenomenon that would follow it to the grave. Even as BCI was holding its creditors at bay, employees continued their wayward spending, taking home laptops, charging lunches at fancy restaurants and gentlemen's clubs and running up $8,000 cell-phone bills.
Despite the layoffs, which had trimmed the workforce from its peak of about 500, the payroll remained bloated. Edwards's wife, for example, kept her job as special events coordinator, even though what few special events the company could afford were organized by the administrative staff. And until he was finally let go last September, public-relations director Long whiled away the days maintaining his contacts in the philanthropic community by telephone while grant proposals piled up on his desk. "I wasn't doing anything," Long says. "Frankly, I probably would have laid myself off a year and a half earlier."
Those who had real jobs were getting wages that many considered off the scale, though Edwards calls them "high end of market." Sales managers with little experience, for example, were clearing $80,000 or $90,000. "We were all making way too much money for what we were doing," says Susie Taylor.
As usual, however, the principals held the first-class tickets on the gravy train. Edwards continued to cut himself bonus checks, charter limousines and use the airplanes indiscriminately. In one instance, he flew an attorney from Washington to Sacramento for a hearing before the Public Utilities Commission, then flew her back the same day. In another, he jetted to New Orleans with three others on a Saturday -- for lunch -- and wrote it off as a business expense. "He wouldn't get rid of the jets," says Taylor. "He didn't want to give them up."
Jim Evans may have been loath to give up his salary and favorite perks as well, but Edwards offered him the proverbial deal he couldn't refuse: He'd buy Evans's stock for $500,000, almost $1.70 a share (compared to the original purchase price of three-tenths of a cent). Plus, BCI would give the attorney a fat consulting contract for doing essentially nothing ("We just wanted to make sure he would be available to answer some questions," says Edwards) and pay his personal secretary's salary for several months even though she would do no work for the company.
Not a bad haul, considering that the company was virtually insolvent, and considering that Evans himself was allegedly concerned enough about BCI's fiscal position to angle for bankruptcy. Evans declined to discuss the details, citing attorney-client privilege as well as a confidentiality agreement that was part of the closeout package.
And how did Edwards pull together the half-million? "I was 'bonused' [by] the company," he says, almost sheepishly. "Some of that [paid for the stock]."
Last summer, no-show Mike Driscoll went on full disability and was at last removed from BCI's personnel rolls. But in another iffy stock transaction, the company paid for his full-time, private nursing care -- $18,000 or more monthly for at least two years, according to one knowledgeable source -- in exchange for most of his shares, worthless though they may have been.
Nevertheless, midway through 1998 Edwards was ready to declare a new dawn. Consulting with the remnants of his management team, he decided to ditch the sweepstakes promotion and try a new marketing approach: The sales force would be dispatched to the frontier with ten-minute calling cards, which would be given away as an incentive for enlisting with BCI. In June he gathered the regional sales managers from around the nation and delivered the news with his usual optimistic spin.
At least a few of the crew emerged from the meeting shaking their heads. A completely new direction, with no test marketing and little guidance, made zero sense. "There were too many gray areas in the thing," says Stan Jaffee, who tendered his resignation several weeks later, ending his three-year tenure with BCI. "I saw the handwriting on the wall, and I bailed out."
As the sales reps fanned out with their calling cards, Edwards was sweating. Regulators were hammering him: a $95,000 settlement in Arizona with suffocating restrictions on future dealings, a $70,000 fine and order to reimburse 700 customers in Texas, an investigation in Wisconsin, complaints in Colorado. A year after it closed the lid on new recruits, California ordered BCI to forfeit its existing customers and cough up $702,000 in repayments.
Worse, the IRS was about to shut BCI down for failing to pay $1.5 million in overdue taxes. To forestall the padlock, Edwards struck a deal with RFC Capital Corp., which specializes in loaning money to small telecommunications companies. RFC would float $1.5 million to pay off the feds as well as front additional cash to keep BCI breathing. Edwards added the note to the stack, which included a loan for several million that he had personally guaranteed to LCI, a long-distance carrier.
Early returns from the field looked promising. "Late July and August, the new marketing seemed to be working, and the projected revenue was performing perfectly." Edwards says. "We were right on track." The first ten days of September, he says, proved just as propitious.
The truth outed the following week, when the revenue figures went flat. Reports from the front indicated that the program was in a state of chaos: Sales reps, who were paid commission on the raw number of authorization forms submitted, were turning in large volumes of bogus orders that couldn't be processed. Working the streets of New York and other inner-city neighborhoods, reps would hawk the cards on corners like crack dealers. "You'd be shocked how much business we got that way," says Northeast sales manager Michael Lydon.
It might have helped if the business had been legitimate. Some of the forms were filled out by people who offered phony names and numbers, then used up the ten-minute cards at the nearest phone booth. Others were simply forged en masse by the rep and turned in. The orders came back to Houston, where workers dutifully switched whatever number appeared on the form to BCI. As a result, thousands of customers were slammed in short order.
Nor was that the only slamming going on at 600 Jefferson: As BCI grew progressively more desperate for cash, attention to quality control had lapsed. People who had never crossed paths with the company abruptly found themselves connected, and they didn't like the steep rates reflected on their bills.
The situation deteriorated into an absurdist play. BCI slammed Dallas Morning News columnist Jennifer Nagorka, who wrote a scathing column about the incident. When she asked to see the order form authorizing the switch, a customer service representative sent her a copy. "It's a remarkable slip of paper," Nagorka wrote. "The letter has someone else's name, someone else's address, someone else's signature and my home phone number."
BCI even slammed the White House.
Evidence suggests that not all the slams were accidental. BCI had developed a software program that transmitted the names of people recruited through in-house telemarketing to the long-distance wholesaler. But according to several sources, the program had another function: to "repick" customers who had been with BCI but had left the fold. "I had a real problem with the repicks," says an administrative worker who sometimes handled complaints from the irate recustomers and relayed her concerns to her boss. "Among upper management, all of them knew about it."
If the customer expressed sufficient bile, he was placed in a "never pick again" list. "The White House went there," the source says. The description of the repick function was verified by two former BCI computer programmers.
"That's bullshit," says Edwards. "I can't believe somebody in [the computer group] couldn't understand what we were doing with that."
Former network administrator Billy Stewart thinks he understands well. After he was fired from BCI last April, Stewart changed his long-distance service to another carrier. Then he opened his phone bill one month and discovered he was again a valued BCI customer. "[The program] slammed me back," says Stewart, who knew of its capabilities. When he demanded an explanation, the response brought back memories. "What was showing on their screen was that I had talked to a telemarketer, but in fact I hadn't," he says. "I hadn't talked to anybody."
If Edwards felt the walls closing in, he showed no signs. Though he'd had to defer some salaries and had stopped reimbursing sales managers for expenses incurred in the field, and though payments to creditors had dwindled to a trickle, he told all who came knocking that the money would be forthcoming in a matter of weeks. "Jim is a master at making you believe in the direction he's going," says Don Boswell, whose ad agency is still looking for "around $100,000" BCI owes. "Jim's the original optimist."
He was so optimistic that in October he verbally committed $25,000 to the Houston READ Commission, so optimistic that he refused to cancel plans for BCI's big comeback Christmas gala, a 500-plate filet mignon dinner at the Houston Club. "Jim believed the company was gonna rise from the ashes," says one of the party planners.
On October 29 the Federal Communications Commission proposed to fine BCI $1.12 million for forging customer signatures on authorization forms and for other slams, citing "a disturbing pattern of willful disregard" for the law. On an October 31 financial statement, BCI listed debts of more than $20 million.
Ten days later Edwards met with controller Mel Cooper and two accountants and worked out a plan. If the company laid off about a third of the sales staff, the revenues from existing customers might well yield a positive cash flow by the end of the year. "Even though the [sales] programs weren't producing, we felt we were coming back," Edwards says. "We felt we were gonna have an outstanding '99."
Just minutes after they finalized the plan, they got word that Southwestern Bell and another local carrier had cut off their billing. The companies charged BCI with "cramming" (adding unwanted services to customer bills). In particular, they disapproved of BCI's $5.25 service charge for customers who had made no long-distance calls.
No revenue, no hope.
At that point, Edwards says, RFC Capital invoked a clause in their agreement, took control of BCI's cash flow and decided to foreclose on its only worthwhile asset, the customer base. "They could see what was happening and said, 'Look, guys, it looks like this thing is heading south here,' " he says.
But if Edwards saw what was happening, he wasn't telling anyone. Employees came to work as usual, processed orders, tinkered with computer programs, answered customer-service calls. When payday rolled around on November 15, everyone took home their checks, which bounced. A week later the majority received pink slips with their morning coffee. The rest, mostly managers, kept coming to work, though they had nothing to do.
He canceled the Christmas party, but Edwards still wasn't giving up. On December 7 Apollo Paper CFO Greg Raindl was told that payments on the $24,000 his company was owed would begin in February. Several weeks later Edwards told Susan Christian of the city parks department that BCI would at some point come up with the $150,000 still owed on sponsorships. "They have said they're going to pay us, whatever that means," Christian says.
In early December Edwards began negotiating with Equalnet Communications Corporation, a telecommunications company that was emerging from its own financial troubles. The fact that he had nothing to offer didn't deter him. "He had a company that was going down the tubes, and he wanted to see if he could pull off a miracle and sell it for something," says Mitchell Bodian, Equalnet CEO.
A quick scan of the books convinced Bodian to back off. "It became painfully obvious that there wasn't any equity value there to buy," he says. Equalnet later purchased the customer base from RFC.
Edwards, who first denied trying to sell BCI that late in the game, says he spent most of his time during the final days trying to land jobs at Equalnet for his employees and himself after the possibility of a sale evaporated.
Managers say he went further than that -- he actually indicated that jobs would be forthcoming. "He told me we were either going to start over again or all go to Equalnet," says Alex Dancy, the former director of sales, to whom BCI owes more than $129,000.
That's what inspired Dancy, John Walsh and another sales manager to set up a table at King's Flea Market the weekend after Christmas, dishing out calling cards and invoking BCI's good name. They would have tried one of the shopping malls, but those doors were barred. "The malls were all owed money," Walsh says.
Edwards asked Dancy in mid-January to manage sales for a new long-distance company that would be run by his wife. "After what happened to BCI," Dancy says, "I told him there was no way I could do that." (Edwards says that idea is now kaput.)
Within a week human-resources director Shari Mauthner wrote the memo that allowed the remaining members of the BCI family to go home. On January 28 RFC's foreclosure became official, and BCI passed into history.
A few employees wound up at Equalnet, but Edwards wasn't one of them. He had almost negotiated a consulting contract with the company when the FCC threatened to kill the deal between Equalnet and RFC if Edwards was involved. "I wanted a job at Equalnet," he says ruefully. "I didn't get it."
In hindsight, Edwards says, maybe he should have put the company in bankruptcy back when there was something to salvage. But he still believes that if Southwestern Bell hadn't shut the spigot at the end, everything would have been all right. "If the billing had not been turned off, would I be sitting here today?" he asks. "No, we'd be heroes."
As for BCI's inability to control the purse strings, Edwards says he tried. "You can issue whatever edict you want to issue, but the enforcement is downline from you," he says. "Yes, there definitely were abuses, and action was not taken when it should have been by some of the managers."
The business plan was always fundamentally sound, he contends, but the company was the victim of hyperaggressive regulators, bad luck and, in the end, unscrupulous employees. "It didn't occur to me that people would forge orders," he says.
He'd like another job in telecommunications, but Edwards has other worries. Dancy plans a lawsuit against him that may pry open BCI's books, forcing Edwards to explain the bonus money, dubious stock transactions, family trips on the corporate jets and other personal use of company funds.
Edwards claims he paid the company back for any expenditure that wasn't business-related, including the Prince of Wales desk, which he's keeping in storage. "Most of that was done through payroll deductions," he says. But he was unable to produce records to prove it, and several employees with direct knowledge of company finances say they're not aware of his reimbursing BCI for so much as a meal.
That may interest the IRS, which can already come after him for the back taxes BCI never paid. Edwards says that amounts to $445,000, though BCI's October 31 statement puts the figure at $767,000 and counting. "It's something that quite frankly could break me for the rest of my life," he says.
The FCC is also hot on his trail. Though the agency's ability to collect the $1.12 million is doubtful, other sanctions remain a possibility, including a permanent ban on any job within the industry.
All that makes his April 14 court date in Washington, D.C., seem like small potatoes. On January 12 Edwards was arrested at Dulles International Airport for carrying a gun in his briefcase. He says he forgot it was there.
Lawsuits from disgruntled minority shareholders or ex-employees -- who are owed a total of almost $1 million -- may be around the corner. "There's definitely a fiduciary duty between the board of directors [Edwards, Driscoll and, before he left, Evans] and the shareholders," says assistant county attorney Rock Owens, who invested a modest $2,000. "It makes one question whether that fiduciary duty was fully adhered to. I just started wondering, where the hell did the money go?"
That question may be left to investigators and the courts, but Edwards avows that his account is empty. That seems a stretch, given that he admits to more than $2 million in salary and bonuses over a four-year period (and others peg that figure much higher), but he sticks by his story. "I put everything I had back in the company, trying to save it," he says. "It ended up not being a very smart decision."
Overall, though, Edwards thinks he did a good job running BCI and that he would make a prize catch for another telecommunications company. "I believe I made good judgment calls all the way through based on what I knew at the time," he says.
"I still think I'd make one hell of a