The CEO of a Canadian company that pledged to build a new plant in the Muscle Shoals area in 2007 has been arrested and accused of defrauding the Retirement Systems of Alabama by misrepresenting the costs of the project.
The Alabama Securities Commission said in a statement Friday that Gregory Aziz, CEO of National Steel Car, was arrested on Nov. 12 in Chicago, and will be returned to the United States “at a later time.” The release said Aziz could face 10 years in prison if convicted on all charges.
Leura Canary, general counsel for RSA, declined comment Friday afternoon. A message seeking comment from the Securities Commission was not returned.
Aziz has retained the Montgomery-based firm of Melton, Espy and Williams in the case.
“Greg Aziz, his family and attorneys are reviewing the claims, which they just recently received,” the law firm said in a statement. “Mr. Aziz will cooperate and is hopeful that these matters can be resolved.”
The indictment, returned by a grand jury in Colbert County, charges that Aziz knowingly mislead the Retirement Systems of Alabama about the costs and scope of a rail car manufacturing plant in Muscle Shoals, announced in 2007. RSA agreed to provide short-term financing for the project, which was projected at the time to bring 1,800 jobs to the area and create a plant that would be capable of producing 15,000 rail cars per year; Aziz created a company called National Alabama Corporation to oversee the project.
Aziz said in a statement at the time that the facility would “further reinforce our position as one of the largest and most modern manufacturers in the North American railcar industry.” Then-Gov. Bob Riley called the project a “transformational economic development project” that would mean “new jobs, more opportunities and a better quality of life for our citizens.”
The plant was built, but the jobs never materialized. According to story in the Florence Times Daily in February, the facility only employed 120 people by 2011, due in part to a slumping economy and a loss of demand for rail cars.
According to the indictment, Aziz and his brother Warren told RSA that the core and shell of the structure would cost $195 million, and sought an additional $102 million to purchase equipment and fixtures for manufacturing, and $50 million in start-up capital, which became the basis of a $350 million construction loan agreement with RSA signed on July 18, 2007. However, the indictment claims that the low bid received for the core and shell of the project that August came to $268 million — $73 million more than what was projected.
That, says the indictment, was the first of many sharp increases in projected costs. From $300 million in July of 2007, the project was estimated to cost $700 million by December, 2008.
“The Azizs never disclosed to RSA that they had known all along that the cost of the project would far exceed the budget given to RSA, and it was part of the Azizs’ fraudulent plan to not reveal this fact until they had drawn and spent substantially all of the original loan proceeds,” the indictment says. “As the Azizs planned, once most of the loan proceeds were spent, they reported and claimed that there had been unknown, and unexpected, and unavoidable cost overruns that generated a need for more money from RSA to complete the project.”
According to the indictment, Aziz ignored warnings from his CFO about the costs of the project; ordered an employee who tried to tell Riley and RSA about the overruns “to remain silent,” and did not disclose spreadsheets showing budget overruns to RSA. RSA did not know of the true costs until November of 2008, the indictment says, when Aziz told RSA he needed another $400 million for the project, saying during a discussion he was “not sure what happened.” RSA lent an additional $275 million for the project in early 2009.
The indictment further claims that Warren Aziz received a $200,000 monthly management fee, and $50,000 per month, “through a shell company called Vandalay Steel, to compensate Warren Aziz for helping Gregory Aziz defraud RSA.” The indictment also claims that Warren Aziz put himself and a chosen team in charge of National Alabama Corporation
RSA took complete control of the plant in 2010, and has since been trying to lure new tenants. Navistar Corp. leased the plant in 2011 and announced plans to build trucks at the site, but only 180 workers were there as of February. Freight Car America leased a quarter of the plant earlier this year, according to the TimesDaily.
– posted by Brian Lyman