Three dozen former Kiosko employees lose jobs as part of SEC fraud investigation
By Susan Smallheer
Staff Writer | May 14,2014
NORTH SPRINGFIELD — The parent company of a North Springfield firm is under investigation for $10 million financing fraud, and as a result has laid off its three dozen Vermont employees, as well as employees in New York, New Jersey, Connecticut and Oregon.
G3K Displays Inc., which bought a controlling interest in the former Kiosko LLC about two years ago and completed the purchase of the firm earlier this year, has been placed into receivership by the Superior Court of New Jersey as a result of a complaint filed against it by MVC Capital Inc., which had lent the firm $10 million in April.
MVC Capital has alleged a “sophisticated fraud” perpetrated against it by G3K’s three shareholders and “certain corporate officers” of G3K, according to a filing by the Securities and Exchange Commission.
MVC agreed on April 14 to provide G3K a $10 million loan, to be paid in three installments, and it had made its first installment of $6 million, the SEC said.
“MVC is working diligently to uncover the full extent of what is believes to be a highly sophisticated fraud. All legal options available are being examined,” the SEC filing said.
The company said in its filings that it conducted “extensive due diligence, including receipt of an unqualified audit report on G3K’s financial statements and a separate quality of earnings review by an accounting firm.” MVC officials did not return phone calls Tuesday, and neither did G3K officials.
Joseph Vizzini, managing director of Capstone Advisory Group, who was appointed by the New Jersey court Friday to be a receiver of the financially troubled company, was in North Springfield on Monday and Tuesday.
“We’re on the ground and we’re trying to assess the situation and exploring all of the options for the company,” Vizzini said.
Kiosko started life as Smokeshire Furniture and Great Brook Furniture, but changed its name and its focus while making high-end display kiosks for shopping malls and airport terminals.
G3K — the K stands for Kiosko — lists many national retailers, such as Foot Locker and Adidas, as clients.
Andrew and Courtlandt Pennell are listed as managing directors of the company, according to G3K’s website. The company was started by their father, Hugh Pennell of Chester.
Labor Commissioner Annie Noonan said the state learned of the layoffs Monday morning, when eight G3K employees came into the Department of Labor’s offices in downtown Springfield and applied for unemployment insurance.
Noonan said her department would hold a “rapid response” emergency meeting for all employees at 1 p.m. Tuesday at River Valley Technical Center, at Springfield High School.
Bob Flint, executive director of Springfield Regional Development Corp., said he was working to help resolve the issues of lost wages.
Flint said he had been in contact with the Pennells to determine if there was “any way of pulling the local company out of this.”
“I have no idea,” he said.
Andrew Pennell, who lives in Rockingham, has an unlisted phone number and couldn’t be reached for comment. His brother, Courtlandt, lives in Colorado and is involved in sales at the firm, Flint said.
Lisa Gosselin, commissioner of the state Department of Economic Development, said there was no evidence the Vermont firm was involved in the alleged fraud.
“It’s a situation where the parent company came in and bought this company a few months back and the Vermont subsidiary is paying the price, as are all the subsidiaries,” she said. “It’s not an isolated, Vermont problem.”
Gosselin said the allegations of fraud “are directed at the parent company and there’s no implication against the innocent acquisition” of Kiosko, she said.
Gosselin said the state is working with Flint to see whether the local company can be saved.