‘Deceived’ on $12m ankle bracelet deal

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian security firm says it was “deceived” by its foreign partners into unjustly parting with two-thirds of the $12m proceeds from the criminal ankle bracelet monitoring contract.

Stephen Greenslade, founder and president of ICS Security Concepts, told Tribune Business that its US and Puerto Rican joint venture partners failed to disclose their “true relationship” - which included common ownership and a forced acquisition - to both himself and The Bahamas government.

Their arrangement, which won the first ankle bracelet contract after it was put out to bid in 2009, provided for an even three-way split of the monies paid by the Ministry of National Security - each receiving one-third - for monitoring accused Bahamian criminals released on bail.

Mr Greenslade, though, alleged that Secure Alert (now renamed Track Group) and International Surveillance Services (ISS) deliberately concealed how close they were - and the fact they were effectively one and the same company following a July 2011 “merger” - to obtain a greater share of the contract revenues than they were entitled to.

Upon discovering the extent of his partners’ ties in 2015, Mr Greenslade stopped remitting them two-thirds of the ankle bracelet contract revenue and cut it to 50 percent to reflect ICS’ belief that it was now a 50/50 joint venture with Secure Alert.

This sparked a furious legal battle which has continued even after the ICS joint venture lost the ankle bracelet contract when it was put out for renewal by the Christie administration and subsequently awarded to Migrafill, which is headed by former assistant police commissioner, Grafton Ifill Snr, in late 2016.

The details of ICS’ struggles are revealed in a bundle of US court documents obtained by Tribune Business, which raise questions about whether its foreign partners also breached the contract with the Ministry of National Security by failing to properly disclose the acquisition and its terms.

The ankle bracelet monitoring contract was hailed as a landmark initiative for The Bahamas’ criminal justice system when it was first unveiled, billed as a way to supervise accused criminals released on bail and ensure they complied with the conditions imposed on their movements/activities by the courts to keep Bahamian society safe.

Besides preventing such persons from engaging in further criminal activity, the ankle bracelets’ introduction was also designed to reduce overcrowding at Fox Hill Prison by enabling the release of remand prisoners while awaiting trial.

However, concerns over the ankle bracelets’ effectiveness surfaced almost immediately. Several persons wearing them were murdered, while it was reported that the bracelets’ could be removed by those wearing them and/or disabled by placing tin foil around them.

When asked whether the financial wheelings and dealings of I.C.S.’s partners impacted the ankle bracelets’ quality and effectiveness, Mr Greenslade defended his firm for giving “very good service quality”.

However, he admitted that the programme was impacted “to an extent” by the dispute with his partners when they failed to upgrade with “next generation technology” as they had done in other jurisdictions - a development that caused “glitches” to occur. (see other article on Page 1B)

This caused concerns at the Ministry of National Security, with court documents revealing: “The Ministry complained in an e-mail to I.C.S. dated October 20, 2015, of the poor quality of the devices and services that it was receiving.”

The dispute, and controversy surrounding the first ankle bracelet monitoring contract, emerged after Track Group, Secure Alert’s successor, last week filed a legal action in Puerto Rico’s federal court demanding that a $689,613 arbitration award in its favour - and against I.C.S. - be upheld.

The move came after the Bahamian security firm successfully convinced the arbitrator, Stuart Weinstein-Bacal, that he had made “a mathematical error” in that award resulting in an “overpayment” to Track Group.

Mr Weinstein-Bacal, on October 22, 2018, amended his calculations to find that I.C.S. owed “zero” to its former partner - the decision that Track Group is now seeking to overturn in federal court, thus prolonging its legal battle with Mr Greenslade’s company.

The initial arbitration award, delivered on August 30 last year, revealed that I.C.S and Secure Alert teamed up when the Bahamian company was “seeking a partner with which to compete” for the ankle bracelet monitoring contract when it was put out to tender in 2009.

Secure Alert was to supply the ankle bracelets and associated technology, with ISS, the Puerto Rican firm, having signed a 2007 agreement to become its “exclusive distributor” in the Latin and Central American region.

I.C.S and its partners secured the contract, signing a deal with the Ministry of National Security on November 19, 2010. This required Secure Alert to notify the Ministry if there was any change in its ownership “by more than 50 percent” within 90 days, and gave the Ministry the right to terminate the deal if it did not agree with the change.

On the same day that the contract was signed, Secure Alert loaned I.C.S. some $180,000 to construct, furnish and equip the ‘Monitoring Centre’ that would track all accused criminals wearing the ankle bracelets.

This loan was eventually increased to a $342,491 promissory note and, on November 30, 2010, the two companies and ISS entered their revenue-sharing agreement that split the proceeds evenly between the three of them.

However, eight months later Secure Alert acquired the entire share capital of ISS, which became the former’s subsidiary. Even though Secure Alert, as a publicly-traded company, was required to disclose the deal to investors, it never provided I.C.S. nor the Ministry of National Security with notice of the deal, its terms or its Securities & Exchange Commission (SEC) filings.

Describing Mr Greenslade as a “credible” witness, the arbitrator found that the I.C.S. chief - although aware of the ISS acquisition - did not discover the terms until 2015.

These revealed that the purchase took place “in a hostile environment” for Secure Alert where it acted “under duress” due to the actions of Hector Gonzalez, ISS’s owner. He was described as an “insider” at Secure Alert, owning 7.5 percent of its shares at the time of the deal, thus giving him a significant interest in both buyer and seller.

With Gonzalez the “controlling shareholder” at Secure Alert, the arbitration verdict found that he forced its acquisition of ISS by threatening to demand immediate repayment of a defaulted loan he had made to the former. Had he done so, the technology provider for the ankle bracelet contract “would have had no choice but to file for bankruptcy”.

The arbitrator found that Mr Greenslade was unaware of any of this, ruling: “Had I.C.S known that Mr Gonzalez was and remained an insider and ‘controlling’ shareholder of Secure Alert, I.C.S. would not have entered into the monitoring agreement with Secure Alert or done business with it....

“Had I.C.S known of the circumstances surrounding the terms of the ISS acquisition or the role and actions of.. Mr Gonzalez in forcing it, I.C.S would have joined with one of two other partners available to it in order to compete for the monitoring agreement with the Ministry.

“I.C.S. had been complaining for several years to Secure Alert (and then to Track Group) as early as 2011 that ISS had not been performing the work required of it pursuant to the agreement in order to earn its one-third of the revenues from the monitoring agreement.”

The ankle bracelet contract continued on a month-to-month basis once it expired in 2013. “Until around May 2015, whenever the Ministry remitted payment to I.C.S. for work performed and invoiced, I.C.S forwarded the payment of the approximately two-thirds of the amount paid by the Ministry that was due to Secure Alert and ISS, which was $9.75 per device per day,” the arbitrator found.

“After Mr Greenslade learned of the true relationship between [Gonzalez] and Secure Alert in 2015, and that ISS was no longer a real partner to I.C.S., I.C.S. began remitting only half (50 percent) of the revenue received from the Ministry to Secure Alert, since it had not responded to numerous requests to reform the commercial agreement’s terms for revenue sharing from one-third each to 50/50 each for Secure Alert and I.C.S.”

This triggered the dispute with Track Group, Secure Alert’s successor, which involves ongoing litigation in the Utah courts as well as the arbitration hearing and the latest Puerto Rico court filings. I.C.S’s counterclaim in Utah is alleging “negligent misrepresentation and fraud” by Track Group.

The Bahamian firm, while admitting it is still liable to Track Group for the promissory note, claimed that it was entitled to a half share of the revenues it paid to the US company on behalf of ISS between March 2011 to May 2015.

It paid some $6.7m to Track Group and its predecessor between April 2011 and November 2016, but the US company terminated their deal on August 23, 2016, and claimed $963,553 was owing by the Bahamian security firm - of which $773,950 represented monies withheld under the revenue sharing agreement.

The arbitrator found Secure Alert/Track Group had “acted in bad faith” and “injured” I.C.S. by failing to fully disclose details of the ISS deal, and were guilty of making a “false representation”. However, while cutting the sum claimed by Track Group from $773,950 to $515,238, when added to the $174,375 due on the promissory note, this took the initial award to the US firm to $689,614.

I.C.S, though, subsequently convinced the arbitrator to reduce this award to zero, arguing that based on a 50/50 split of the $11.779m paid by the Ministry of National Security over the contract both sides were due $5.89m each.

It added that some $6.676m had been shown as paid to Track Group, meaning that the US firm had been overpaid by $785.937. Allowing for the sum due on the promissory note, I.C.S. said this was stilL an overpayment of $611,562 meaning that Track Group was entitled to receive nothing.

The arbitrator agreed with such logic, which is what Track Group is now seeking to overturn - and reinstate the original award - in the Puerto Rican courts.