5/16/2014Illinois: Chicago Scandal Costs Redflex Millions
Redflex revises profit estimate downward to a $9 million loss as cities shun red light camera bribery scandal.
Redflex Traffic Systems is working overtime to let clients know that it has done nothing wrong. It is a tough message to sell as the Federal Bureau of Investigation continues gathering evidence to build its case against those involved in supplying $2 million to influence the Chicago, Illinois official in charge the city's red light camera contract. That official, John Bills, was charged on Tuesday with felony solicitation of a bribe from Redflex. Redflex CEO James Saunders sent an email to US clients on Thursday to downplay the relevance of the development.
"These documents do not charge Redflex Traffic Systems with any crimes," Saunders wrote. "The information released yesterday is not surprising. The government's decision to charge the former city of Chicago employee was expected, and is consistent with our internal investigative findings that we shared with governmental authorities last year."
The results of the Redflex internal investigation left out the bulk of what actually happened in Chicago. In an October 17, 2012 release to Australian shareholders, the company said its report concluded that an employee (now known to be Redflex Executive Vice President Aaron Rosenberg) improperly paid $910 for a Chicago official (John Bills) to stay in a hotel room. The admission was couched in language meant to give the appearance that the investigation was complete.
"Redflex understands that the Chicago Board of Ethics, in conjunction with city corporation counsel, will investigate the circumstances of the US$910 payment and decide on what (if any) penalties may be applied against the company," Redflex concluded in 2012.
The US attorney's office for the Northern District of Illinois found quite a bit more, exposing details of $2 million worth of benefits that made their way from Redflex to Bills and his close associate. This included paying the mortgage for the mistress of Bills and, a few years later, for the expense of divorcing his wife. As a sign that Redflex has turned a corner, the firm is offering cities a limited form of transparency.
"Upon request, we will provide an audit report of gifts and gratuities extended to any governmental official or employee since January 2013," Saunders emailed on Thursday.
Redflex is in damage control mode because the firm is starting to lose money fast. For the second half of the financial year, Redflex had told Australian shareholders that the company was going to break even, despite the Chicago trouble. Last week, however, the company admitted it is likely to lose $9 million as cities find it safer not to get involved with the troubled photo ticketing industry.
"Conditions within the USA market continue to be difficult, and Redflex is currently experiencing a higher than normal number of cities choosing not to renew their programs (no intersections have been lost to competitors, cities have simply decided not to continue with enforcement programs)," the Redflex statement explained. "The resultant reduction in cameras and associated asset write-downs, together with a lack of new installations, has negatively impacted our USA revenue base and profitability."