The newly named head of the MBTA, Luis Ramirez, is touted as a turnaround specialist. He comes to the post with extensive experience at both Siemens and General Electric, and for the past five years has focused on turning around companies — first as president and CEO of Texas-based Global Power Equipment Group, and then as a consultant focusing on turnarounds.
"I keep hearing myself described as a turnaround guy, and it's true, I have been charged with improving and transforming very complicated operations," Ramirez said during his MBTA introductory press conference Tuesday.
We examined Ramirez's specific turnaround experience during his tenure as CEO of Global Power. Ramirez led the company from July 2012 until March 20, 2015. On his LinkedIn page, Ramirez says that while at Global Power, "I led the 'turnaround' of a global public company that had experienced declining growth and market share loss over a period of several years."
Yet there's substantial disagreement about whether the company was actually turned around. A group of investors is suing the company and the Securities and Exchange Commission has opened an investigation, according to Global Power Equipment Group.
Ramirez left the company on March 20, 2015. Less than two months later, the firm had to notify the SEC in writing that the company's financial statements for 2014 "should not be relied upon because of accounting errors" and that they were retaining outside advisers to see if reporting for other years may have been affected.
That kicked off a detailed internal review. In March 2017, the company refiled its accounting information with the SEC. The new reports contain significant differences in key measures of the company's financial health. For example, in its original filing, Global Power Equipment Group reported a net income of $11 million for 2014, the final complete business year Ramirez served as CEO. The company's restated SEC filings show that in 2014, it actually had a net loss of $47 million. Global Power Equipment Group originally overstated its 2014 net income by 524 percent.
A group of investors is suing Global Power Equipment Group and the Securities and Exchange Commission has opened an investigation into the company.
In the restated filing, the company also said it discovered additional accounting errors for 2014, 2013 and 2012 -- the same three years Ramirez was CEO -- noting that the auditor's reports, shareholder communications and other financial statements previously issued for those years "could no longer be relied upon."
It's not unusual for companies to issue restatements, according to Andrew Vollmer, former deputy general counsel at the SEC who currently heads the law and business program at the University of Virginia School of Law.
"But the allegation here about four years of fairly sizable overstatements of various line items is more toward the unusual end of things," Vollmer says.
Global Power Equipment Group has disclosed that the SEC is investigating the restatements, and says that the company is fully cooperating with the investigation. The board also hired an independent special committee to review the problems.
"[T]he Special Committee identified additional potential accounting errors that the Company is assessing in connection with its restatement," Global Power disclosed to the SEC in January 2016. However, the company also noted that "based on the evidence considered, the Special Committee did not find any intentional misconduct or fraud in connection with the preparation of the financial information that the Company intends to restate."
Vollmer says generally, the SEC looks at several factors when deciding whether to launch an investigation, including a "material misstatement," how long the misstatement was in effect, the number of investors in the company, and "they would care about the stock price decline once the truth became known, because that helps you understand how serious the loss to investors might have been."
On May 4, 2015, Global Power's stock priced closed at $12.11 per share. The next day, the company alerted the SEC about the misstatements, and it issued a press release on May 6. On May 7, the stock closed at $8.19 a share, a loss of more than 38 percent.
Ramirez stepped down as CEO in March 2015. A spokeswoman for the company said Ramirez's departure was not related to the restatements, but did not comment further on his departure.
But those restated corporate financials and the precipitous drop in stock price are part of a lawsuit against Global Power Equipment Group, Ramirez and other company executives. The case has been filed in a Texas district court.
"We allege Mr. Ramirez didn't take proper steps to report errors. And in fact, the company reported those financials with errors in place," says Jeffrey Block, a Boston attorney who specializes in securities law and is representing plaintiffs in the class action lawsuit.
Federal securities law requires that a company's CEO and CFO personally sign a document with every quarterly and annual statement that certifies that the reports or filings are "accurate and complete" and that the company has maintained adequate internal controls to assure financial accuracy of its business practice. Ramirez signed all such certifications Global Power filed with the SEC during his tenure as CEO.
The suit also alleges that several employees told Ramirez directly about the financial problems at Global Power Equipment Group.
"Our investigation from the confidential witnesses that we spoke to, who are all people who worked at Global Power, stated to us that they informed Mr. Ramirez of a number of financial problems and that no steps were taken to correct those errors prior to those financial statements being released to the public," Block says.
The suit alleges that in October 2014, Ramirez convened a meeting in Atlanta to discuss the worsening financial condition of one of Global Power's business units but filed the original erroneous annual report anyway.
Attorneys representing Ramirez and Global Power did not return requests for comment.
But, lawyers for Global Power have filed a motion to dismiss the suit altogether. The plaintiffs expect to file their response by Aug. 25. The Texas district judge's decision on whether the case should go forward is likely months away.
As for the SEC, Vollmer says investigators would likely be looking at what individuals at the company knew at the time that false information was filed.
"It's a securities fraud to misstate your financials in a material way if you do it deliberately or recklessly," says Vollmer, noting that these are the plaintiffs' allegations about the company. Vollmer says another possibility is an innocent mistake. Someone at the company may have thought they were following the correct accounting rule, but was wrong.
"Now, that's not a typical example, but it is a possibility," Vollmer says.
Ramirez begins his work as MBTA general manager on Sept. 12.
A spokesman for the MBTA says the search committee tasked with finding the new GM was "well aware" of the lawsuit against Ramirez.
"During the extensive vetting process, nothing was found that would preclude the MBTA from making an offer to the candidate. The court system is overloaded with business-related disputes such as this one," the spokesperson says.
The T says it has no concerns about Ramirez's ability to do his job while the Texas class action lawsuit and the SEC's separate investigation are pending.
The spokesperson referred back to Massachusetts Transportation Secretary Stephanie Pollack's statement announcing Ramirez's hiring: "[His] proven leadership skills make Luis the right person to lead the MBTA as it continues to become the world-class transit agency our riders expect and deserve."
This article was originally published on August 16, 2017.
This segment aired on August 16, 2017.