Quadrant 4 System Corp (OTC:QFOR) announced it has reached a partial settlement with the U.S. Securities and Exchange Commission and filed for Chapter 11 restructuring. Filing for Chapter 11 allows the company to continue with normal operations while it looks to market and sell its business units.
According to documents filed with the U.S. Bankruptcy Court in the Northern District of Illinois (case number 17-19689), Quadrant 4 is currently defending several lawsuits. Unfortunately, these lawsuits have left the company with huge financial obligations which the company cannot meet without a significant infusion of cash.
Given the circumstances, Quadrant 4 does not believe that obtaining new capital is a viable option. As a result, the only practical way forward is to market and sell the company’s assets and business through the Chapter 11 sale process.
The Schaumburg, Illinois-based company also said it is aware of the additional criminal charges filed by the U.S. Attorney’s Office for the Northern District of Illinois against two of its former executives for wire fraud in relation to various other types of misconduct during their time employed at Quadrant 4. No criminal charges have been, or are anticipated to be, filed against the company itself.
Cracks first began to appear at Quadrant 4 back in November 2016, when the two individuals were arrested for overstating the company’s finances and concealed liabilities in order to boost its share price. The two are also alleged to have misappropriated more than $3.0 million from the company. The acts of fraud also involved numerous misrepresentations related to Quadrant 4’s acquisitions.
The SEC first launched an investigation into Quadrant 4 in 2015 after it appeared that the firm had violated federal securities laws. An FBI investigation revealed that the defendants certified false SEC reports, including Quadrant 4’s 2014 Form 10-K, in which the defendants fraudulently inflated Quadrant 4’s revenue by more than $4.2 million–nearly 10% of Quadrant 4’s reported income that year.
On June 20, 2017, the U.S. Attorney’s Office for the Northern District of Illinois announced additional criminal charges, including charges that the accused had attempted to obstruct the SEC’s investigation, lied to the SEC under oath, and paid two individuals to lie to the SEC over the course of its investigation.
With regards to the recently announced filing for Chapter 11, Robert H. Steele, the company’s chief executive officer said, “The voluntary Chapter 11 filing will give the Company sufficient breathing room to continue working through the process. The Company has already received signed asset purchase agreements for certain of its business units from reputable and stable organizations, which will be subject to approval during the Chapter 11 process and help guarantee the continuation of the Company’s services to customers and other interested parties.”
“Quadrant 4 System Corporation Reaches Partial Settlement with U.S. Securities and Exchange Commission and Files for Voluntary Chapter 11 Restructuring,” Quadrant 4 System Corp, June 30, 2017.
“U.S. Bankruptcy Court in the Northern District of Illinois,” United States Bankruptcy Court, July 4, 2017.
“Federal Grand Jury in Chicago Indicts Two Former Tech Executives For Allegedly Conspiring to Obstruct SEC Probe into Sale of Company,” United States Department of Justice, June 30, 2017.