10/18/2012Redflex Share Value Tumbles as Chicago, Illinois Contract Threatened
Potential loss of Chicago, Illinois red light camera contract in January threatens Redflex profitability.
Australian investors panicked yesterday as Redflex Traffic Systems admitted they had been caught by the Chicago Tribune newspaper having committed a serious ethical violation. As the news arrived down under, Redflex shares tumbled 14 percent to $1.76 -- a low not seen since the beginning of the year.
The lousy performance of the red light camera company in 2012 is hitting the firm's executives in the pocketbook. On Monday, Redflex asked shareholders to prepare for the annual meeting in Melbourne on November 14 to approve the granting of 92,933 shares of stock as a reward for Karen Finley, the board member in charge of US operations. This amount represents a 16.6 percent cut from her 2011 compensation, depriving her of $38,590, as valued on the day of the announcement.
Redflex investors are terrified the company could lose 13 percent of its revenue if Chicago, Illinois drops the automated ticketing firm for good when its contract to provide 384 red light cameras to the Windy City expires on January 31, 2013. Without that income, the Redflex 2012 profit of $15.1 million after tax would have been a $4 million deficit. The renewal is in significant jeopardy after city officials on Monday declared the firm a "non-responsible bidder" ineligible to land the contract to run the upcoming speed camera program.
As the Tribune first reported, Redflex spent $910.71 on a luxury two-day stay in 2010 for John Bills, the Chicago official in charge of the red light camera contract. Redflex did announce it had implemented anti-bribery classes for its employees to prevent further ethical lapses -- two years later. Chicago's Department of Procurement Services was not impressed.
"I understand that Redflex has stated that it has taken steps to train employees to protect against similar misconduct in the future," Chief Procurement Officer Jamie L. Rhee wrote. "While I commend Redflex for any actions it may have taken to mitigate the misconduct that occurred, I want to be very clear on what Redflex did not do: notify the city of the incident in any kind of timely manner. It appears that Redflex disclosed the incident to the city only after it realized that the story was going to appear in the newspapers."
Rhee was also infuriated that the city could not take action against Bills, who has since left. He briefly did work on behalf of a Redflex front group.
"He was a short-term consultant to the Traffic Safety Coalition, which ended four months ago," Resolute Consulting Executive Vice President David Goldenberg wrote in an email to TheNewspaper.
Resolute Consulting is the public relations firm that runs the Traffic Safety Coalition on behalf of Redflex. Though Resolute has strong ties to Mayor Rahm Emanuel (D), as TheNewspaper first reported, those ties may not be strong enough to overcome the legal obligation for Chicago to select another vendor.
"It appears that a Redflex employee in a management position over a city contract violated, at a minimum, the city's ethics law, Redflex violated the city's ethics laws, and that Redflex in effect covered the matter up by failing to report it to the city for a period of two years," Rhee wrote. "Illinois law requires that city contracts be awarded to responsible bidders."
Though Redflex is on the hot seat for providing perks to city employees, this remains a common industry practice. In 2010, the Australian firm also put the police chief of Oak Ridge, Tennessee up at the Ritz-Carlton Hotel in return for his favorable testimony at a court trial two years ago. Affiliated Computer Services (ACS, now a part of Xerox) was caught giving hockey tickets and other services to police officers in Edmonton, Canada, although criminal charges were ultimately dropped. American Traffic Solutions (ATS) regularly entertains public officials involved in red light camera business, but the airfare, lodging and wages during the event is paid for by taxpayers, not ATS.
Correction: An earlier version of the article incorrectly implied Bills still performed work for Redflex and Resolute Consulting's Traffic Safety Coalition.