Volume 10, Issue 8 - October 2009

The Rise & Fall of Republic
Inside the Company’s Demise as Outlined in the Charges Against Former CEO Richard Gillman
by Penny Stacey

When Richard Gillman, former president and owner of Republic Windows, purchased the company with a business partner in October 2005, the economy and the housing market were booming. And so was the door and window industry.

But even as early as 2006, the vinyl door and window company started to see losses occurring in its books. Court documents filed when Gillman was arrested in mid-September for charges related to the company’s demise—and his alleged efforts to start another business by laundering money from Republic and stealing machinery and funds from the company—provide an interesting look into the company.

It seems the company, which was founded in 1965 by William Spielman, experienced a net loss of $8.2 million in 2006 and a smaller loss—but still a loss—of $688,685 in 2007, according to prosecutors. The company perhaps hit bottom when its closure made national news, and again when Gillman was arrested nine months after the infamous sit-in at the plant.

Employees who engaged in the sit-in, refusing to leave on Friday, December 5, 2008, when the plant was supposed to have closed, probably had no idea the national toll their actions would take. At the time, even the President weighed in, applauding the actions of the protestors. Illinois Gov. Rod Blagodevich was on-scene at the facility demanding that the state cease doing business with the Bank of America in light of the rumors that its pulled funding had caused the plant to close. National news networks across the country featured photos and video footage of the workers there. Even today, the plight of the employees who demanded their pay—having been told just days earlier that the plant would close—is the subject of a number of documentaries about unions and labor issues.

But what these employees didn’t know was that their sit-in efforts allowed bankruptcy and state officials access to the plant to uncover many of the documents cited in the recently filed case.

“The employee occupation of the factory, while apparently peaceful and orderly in nature, effectively prevented Gillman, Individual A, Individual B, Employee B and others from re-entering Republic’s offices or the manufacturing floor,” reads court documents filed in the case. “As a result, Bankruptcy Consultant and other agents of the bankruptcy trustee were able to recover many of the documents referred to herein.”

(Editor’s Note: The “proffer in support of setting bond” filed against Gillman cites several others as involved in the alleged scheme; they are known as Individual A (chief operating officer) and Individual B (director of manufacturing). Though neither had been named officially by the courts involved in the case at press time, Republic officials Barry Dubin and Tim Widner are referenced as COO and director of manufacturing, respectively, in various sources, including a business networking site on which they both have profiles, LinkedIn®. Neither Dubin nor Widner could be reached for comment at press time.)

“Viable, Legal and Ethical Options”
The state alleges that the company’s downfall became imminent as early as mid-2008, as the company “was seriously in arrears on payments to creditors and it was nearly certain that insolvency was imminent,” according to court documents, authored by John Mahoney, assistant Illinois state’s attorney deputy supervisor. Mahoney works in the state’s attorney office’s public corruption and financial crimes unit.

But first, Republic officials looked at “viable, legal and ethical options,” including a possible merger, acquisition or relocation, according to court documents. Prosecutors reference several PowerPoint presentations that were found in the Republic offices about how to come through the financial struggles.

Documents found show that the company hired a consultant, Larry Pointelin, “to conduct an operations review.” According to court documents, he pointed out the following in April 2008:

• Republic’s computer system needed to be replaced;

• The company’s union contract would be up in May 2008; and

• He believed “Republic could not realize a profit … in Chicago.”

On the last point, Pointelin allegedly advised the board that “the cost of worker wages and benefits were too high in Chicago and would be lower elsewhere.” He estimated re-location costs at $3.5 million, according to court documents.

The State Attorney’s Office also points out that the company signed a draft agreement with Jordan Knauff and Co. (JKC), an investment banking firm that specializes in the door and window industry, to obtain “‘buy side’ only acquisition advisory services” in early 2008.

One presentation found on-site showed that JKC located 60 suitable candidates for merger and acquisition negotiations, Mahoney reports. “Of these, 50 companies were considered by Republic to be unattractive candidates for strategic partnership,” he adds.

JKC’s Michael Collins told DWM magazine about the firm’s work for Republic, but advised its involvement with the company ended prior to the purchase of TRACO’s facility.

“We conducted a standard acquisition advisory assignment for Republic Windows,” Collins said. “Our work for Republic had stopped by the time Rich Gillman purchased the TRACO facility and by the time any of the alleged wrongdoing had taken place. Needless to say, we weren’t involved in any of that.”

“The first half of 2008 had seen Republic’s management considering viable, legal and ethical options to avoid insolvency,” writes Mahoney. “Had any of those options become a reality, there was a possibility that Republic could have continued as an ongoing concern. By mid-2008 … Republic’s insolvency seemed to be imminent.”

“How Do We Plug a $4 Million Hole?”
One document allegedly recovered from the chief operating officer’s office was a document called “How do we plug a $4 million hole?”

In the document, “Individual A” suggested the company “suspend interest and principal payments on debt owed to Veka, suspend or limit capital expenditures, block relief from LaSalle and temporarily defer payments to GE Capital,” for a savings “of only $1,539,000.”

Several consultants also reviewed the company’s financial situation in mid-2008, including Fort Dearborn Partners Inc. and Silverman Consulting, which suggested that the company should start thinking of its creditors.

“At this point, the company was nearing the zone of insolvency and management’s … fiduciary obligations should have started to shift to what was in the best interest of the company’s creditors,” reads the proffer.

The State Attorney’s office claims that instead of following the advice of the consultants and “fulfilling their legal obligations to their employees and creditors, Gillman, Individual A and Individual B formulated a scheme to defraud them.”

The Alleged Echo Plan
And it was at this point that Mahoney says Gillman and his associates launched a conspiracy to abandon the company’s debts and secretly relocate the company’s “collateralized manufacturing equipment” to an existing window factory in Red Oak, Iowa (also known as Echo Windows).

“The ultimate goal of the conspiracy was to use the stolen property to create a successor window manufacturing company to Republic that Gillman would operate, free of responsibility of the staggering debt that his mismanagement created,” writes Mahoney.

According to court documents, Republic had been in discussions with TRACO, based in Cranberry Township, Pa., as early as March 28, 2008, about its offer to sell its existing vinyl replacement window manufacturing division in Red Oak.

“The acquisition of TRACO’s plant and the relocation of its manufacturing operations to Red Oak would have possibly been legal had certain conditions been met,” writes Mahoney in the complaint. “Among those conditions were full and total disclosure obtaining the prior permission of the owners of the company and its assets—Chase, Bank of America and [GE Capital Corp.]. These conditions were ignored and instead the conspirators concealed the true nature of their scheme to defraud.”

The State’s Attorney’s Office say they found an easel board in Gillman’s former office in Chicago with plans about when items and machinery would be moved, what would be moved, by who, etc. Though it allegedly noted that Republic’s Sienna P-2, Contour and Allure lines definitely would be moved, “the option was left open to steal other manufacturing lines,” reads documents filed in the case.

Prosecutors also say they found a document dated October 31, 2008, which appears to be a fourth revision of the plan, outlining that in Phase I they would “renegade Contour immediately,” and in Phase II, “they would remove ‘Allure, Patio Door, Minor Casement, Glass and Complete Contour.’”

“This is evidence of the plan to steal additional manufacturing equipment from other lines,” writes Mahoney. The court says the document also references a “Phase II and III forced blitz move.”

Echo was incorporated in November in both Illinois and Iowa, according to court documents, and Richard Gillman’s wife, Sharon, and Lawrence Gritton were listed as its principal agents.

The court alleges that Gillman sought the assistance of William H. Smith (the partner with whom he originally purchased Republic through a company they co-owned) to finance the purchase of Echo. Prosecutors allege that the two set up a new company, Smithfield Windows, “to use as the vehicle with which to [purchase the TRACO facility].” Smithfield Windows was set up on September 9, 2008, and Gillman, Smith and “Individual B” traveled to Red Oak to visit the future Echo facility on September 11, according to court documents.

Then, in October, “Smithfield Windows … wrote letters of intent to the Board of Directors of Republic offering to execute a purchase agreement covering the sale of all its furniture, equipment, computer systems, intellectual property and pending purchase orders for the sum of $100,000,” reads the proffer.

At that time, Smithfield also is alleged to have also started negotiations with Veka to utilize its vinyl extrusions. Republic also had used Veka, but the company had cancelled its credit to Republic due to a large outstanding debt, according to court documents.

On November 18, Smithfield changed its name to Red Oak Real Estate LLC, with Gritton named as its principal agent, according to court documents. (TRACO announced that it had sold its vinyl replacement window facility to Red Oak Real Estate the same week that Republic announced it was closing its doors.)

Carrying Out the Plan
As Gillman and his associates were finalizing the plans of the move, prosecutors allege they also were setting up other companies to complete “the theft of $202,000 from Republic.”

“This stolen money was laundered through a bank account of a corporation formed solely to facilitate the scheme to defraud,” reads the proffer. “The laundered money was then used to purchase equipment and transport stolen assets.”

Prosecutors allege two shell corporations, International Fenestration Partners (IFP) and TKDO Inc., were set up for this purpose. The State Attorney’s office alleges that money was funneled from Republic to these two companies in order to pay to relocate Republic’s assets to Red Oak.

“Concealment of their scheme required Republic’s money could not directly, or at least easily traceably, be used for that purpose,” writes Mahoney. The state says that over five months—starting in June 2008—checks were written from Republic’s bank account to IFP’s account, which was set up in Barberton, Ohio, for a total of $202,103.

The court says that when a bankruptcy consultant was reviewing Republic’s books and purchase order list, it showed that the invoice items associated with the money Republic paid IFP were never received.

The State’s Attorney’s office notes that IFP’s bank records also were reviewed as part of the investigation, and that it had made several checks to TKDO LLC—with an address of 3630 S. Canal St., Chicago, “the address of Individual B’s home,” for a total of $57,122.30. Several public records located by DWM link the address to Widner and his wife, Kasha.

IFP also had made payments to several industry suppliers, including Sturtz Machinery and Product Design and Development (PDD), according to court documents.

“PDD shipped an order for machine tools, dies and presses ordered by Employee A and Individual B, which were necessary to re-tool soon-to-be stolen manufacturing equipment that would be required to support Echo’s operations in Red Oak, Iowa,” reads the proffer.

In September 2008 Republic officials allegedly realized that to move one particular line of machinery, it would need to be re-tooled and new dies would need to be fabricated for it to be used in a new facility.

“Individual B told Employee A to use the company name ‘TKDO’ when he placed the order for the purchase of equipment [from PDD],” writes Mahoney. “Individual B explained to Employee A that he could not use Republic’s name when he placed orders because nobody would ship to Republic anymore because of its very poor payment history and lack of credit.”

The employee provided his own home address for the order, according to court documents, and was told by “Individual B” that TKDO were the first initials of all his family members.

The equipment move allegedly began during the second week of November 2008, and “Individual B” is said to have told employees it was being “liquidated to pay employees’ wages,” according to court documents. “Employee A” told investigators that those who moved the lines into trailers were paid with cash, according to court documents—which came from Republic’s account for alleged “electric work to be performed” at the request of “Individual B,” who said that the work could only be paid for with cash, according to documents filed in the case.

During the Republic bankruptcy case, which was filed shortly after the company closed its doors, prosecutors say Gillman provided a testimony saying he authorized the removal of the equipment, but was not present for the move. The trucking company provided invoices to investigators showing that three of the trucks of equipment went to the Red Oak facility in early December, and seven were removed to a Republic storage yard in Chicago, according to court documents. The trucking company advised it was paid by IFP, according to prosecutors, and the checks were signed by Jason Petrie, the only name referenced in the court documents as associated with IFP.

The Final Days
Shortly after the equipment was moved, announcements that Republic was closing its doors began. Some employees were told on December 2 by “Individual A” that the company was closing the following Friday and all the manufacturing employees learned the same on Thursday, December 4, according to court documents. Prosecutors say all employees were told they “would be expected to leave the plant by 10:30 a.m.” on December 5.

Company officials claimed it was closing “because its credit
was pulled,” according to court documents.
The employees stayed at the plant several days, drawing national attention to the company and its owners.

Echo did receive three of the seven trailers of equipment, but soon also closed on February 23, 2009, as shipments of materials needed ceased arriving at the plant.

The Story Continues
At press time, Gillman remained in custody at Cook County Correctional Facility in Chicago. In the charges, prosecutors allege that he and his alleged co-conspirators “formulated and executed a scheme to defraud Republic’s debtors by abandoning Republic’s debt, hijacking its collateralized assets, and transporting them to Red Oak, Iowa, with the intent of using the stolen property to create a successor to Republic.”

None of the others associated with Gillman had been named nor arrested at press time.

State’s Attorney’s Office deputy communications director Tandra Simonton advised DWM magazine the investigation is ongoing.

Stay tuned to www.dwmmag.com as this case unfolds.

Penny Stacey is the assistant editor of DWM magazine. With additional reporting by DWM editor Tara Taffera.

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