The proxy fight between infoUSA and stockholder Dolphin Limited Partnership I, L.P., escalated on Wednesday, when infoUSA CEO Vinod Gupta issued a letter alleging that Donald T. Netter, who is leading Dolphin’s effort, once managed a company that was fined for Medicare fraud.
In turn, Dolphin’s rejected the infoUSA’s claims. Both companies urged shareholders to vote for their respective boards of directors candidates.
In his letter, Gupta listed infoUSA’s financial achievements under its current board. It also stated that “Netter served as an officer and director of a corporation guilty of Medicare fraud.”
The company Gupta’s letter referred to was Damon Corp. In October 1996, a Damon Corp. subsidiary, Damon Clinical Laboratories, Inc., paid the government $83.7 million to settle allegations that it had falsely billed Medicare for unnecessary blood tests, according to a 1997 Health Care Fraud Report from the Department of Justice. Damon also agreed to pay a $35.3 million criminal fine, and was barred from participating in Medicare and certain other government health care programs, according to the DOJ papers.
According to Gupta’s letter, Netter and other parties assumed control of Damon in 1989, and Netter subsequently held several positions in the firm. Gupta further alleged that Netter and the other Damon directors failed to disclose to investigators and shareholders evidence of Medicare billing irregularities, which were subsequently discovered during an internal investigation. According to Gupta, The Boston Globe referred to the case as “corporate greed run amok.”
Shortly after infoUSA made its shareholder letter public, Dophin issued a statement calling the letter “nothing but a blatant attempt to distract from the real issue: the infoUSA Board’s lack of ability to rein in its chairman.”
Dolphin’s statement continued “...the accusations about Dolphin and Donald T. Netter are absurd. Dolphin has a long history of creating shareholder value. As Mr. Netter has said publicly, ‘At no time was I or any director who became associated with Damon after its acquisition accused of, or found to have committed, any inappropriate act by the government after a three-year investigation.’
Dolphin’s letter concluded: “Dolphin finds it shocking that even with a 40 percent head start, Mr. Vinod Gupta finds it necessary to resort to these smear tactics. Dolphin, with a $25 million investment in infoUSA, remains committed to the interests of all shareholders.”
For his part, Gupta claimed that the fraud fines levied against Damon while Netter was an officer, combined with the allegation that “the only time that Mr. Netter has held any leadership position at a publicly held company not affiliated with his family was when he served as a director and officer of Damon Corp.,” disqualify him as someone worth trusting to pick infoUSA’s board.”
InfoUSA’s shareholder meeting is scheduled for May 26.
