SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 14, 1994
SAFECARD SERVICES, INCORPORATED
---------------------------------------------------
(Exact name of registrant as specified in charter).
Delaware 1-10411 13-2650534
- ---------------------------- ----------- -------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
No.)
3001 E. Pershing Boulevard, Cheyenne, WY 82001
- ----------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number,
including area code: (307)771-2700
N/A
(Former name or former address, if changed since last report).
Item 5. Other Events
Peter Halmos filed a counterclaim in the suit he initiated in
the Circuit Court for the 17th Judicial Circuit in and for Broward
County, Florida. The counterclaim is attached as Exhibit 1.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
SAFECARD SERVICES, INCORPORATED
BY: /s/ Gerald R. Cahill
----------------------
Name: Gerald R. Cahill
Title: Chief Operating Officer
January 20, 1994
EXHIBIT 1
- ---------
IN THE CIRCUIT COURT FOR THE
17TH JUDICIAL CIRCUIT IN AND
FOR BROWARD COUNTY, FLORIDA
HALMOS TRADING & INVESTMENT CIVIL DIVISION
COMPANY,
CASE NO. 93-04354 (06)
Plaintiff,
v.
SAFECARD SERVICES, INC., a
Delaware corporation, and
GERALD CAHILL,
Defendants/Counterplaintiff/
Third Party Plaintiff,
v.
PETER A. HALMOS,
Counterclaim Defendant,
and
STEVEN J. HALMOS and HALMOS
TRADING & INVESTMENT CO.,
Third Party Defendants.
_______________________________________/
COUNTERCLAIMS OF ADDITIONAL PARTY
DEFENDANT PETER A. HALMOS
-------------------------
Additional Party Defendant Peter A. Halmos counterclaims
against SafeCard Services, Inc., and states:
1. This is an action for damages caused by SafeCard's
outrageous and spiteful conduct, whereby through stealth and
fraud it attempted to frame Peter Halmos for criminal tax fraud,
and to extort $25 million from him by threatening to file a false
lawsuit that would have criminal ramifications. This action also
seeks damages for SafeCard's breach of its contractual duties to
indemnify Halmos. Halmos' damages exceed $25 million.
2. All conditions precedent to this action have been
performed or waived or have occurred.
PARTIES
-------
3. Counterplaintiff Halmos is a citizen of the State of
Florida. Counterdefendant SafeCard has joined Halmos as an
additional party defendant to its counterclaims filed in response
to Halmos Trading & Investment Company's Second Amended
Complaint.
4. Counterdefendant SafeCard claims to be a Delaware
corporation, with its corporate headquarters in Cheyenne,
Wyoming. SafeCard conducts business in Florida, and employs
individuals at offices in Fort Lauderdale that it has occupied
since it abandoned the lease premises at issue in the Second
Amended Complaint, and repudiated its contractual and other
obligations to Halmos Trading & Investment Company.
NATURE OF THE CASE
------------------
5. Halmos is the co-founder of SafeCard, along with his
brother Steven Halmos, another additional party defendant to
SafeCard's counterclaim. Pursuant to management contracts
between Peter Halmos, Halmos & Company/High Plains Capital
Corporation, and SafeCard, prior to 1987, Halmos served as
chairman of SafeCard's board of directors, chief executive
officer and secretary; from 1987 to October, 1990, Halmos served
as SafeCard's chairman and secretary; and from October, 1990
until his wrongful ouster in December, 1992, Halmos served as an
executive management consultant to SafeCard.
6. Pursuant to his role at SafeCard, Halmos became
SafeCard's primary defender, and thus its most public target.
Because of his SafeCard role, over the years Halmos was subjected
to numerous investigations by the Securities & Exchange
Commission, an investigation by the Federal Trade Commission,
four lawsuits by class action counsel falsely alleging insider
trading and other defalcations, a criminal FBI investigation, and
literally countless items of negative publicity. Each of these
investigations was closed with no finding of wrongdoing. Two of
the lawsuits were withdrawn by the Plaintiffs as having no merit,
and two were thrown out of court with no liability to Halmos.
Nevertheless, the damage to Halmos' reputation for business
integrity remained long after the cause of the damage had been
removed.
7. The most painful of the repercussions suffered by
Halmos as SafeCard's public target, however, was a criminal tax
fraud investigation by the Internal Revenue Service. Fueled by
the negative publicity arising from Halmos' position as
SafeCard's chief defender, and relying upon documents stolen from
SafeCard and Halmos & Company by an IRS informant, the IRS raided
SafeCard's offices on October 14, 1988. The IRS obtained a
search warrant on the basis of erroneous information provided by
the defalcating SafeCard/Halmos & Company employee (who was
secretly a controlled IRS informant), as well as on the basis of
erroneous newspaper articles about Halmos and SafeCard.
8. With this dramatic beginning - IRS agents descending
without warning as part of a raid - Halmos encountered his most
difficult, dangerous and costly battle: protection of his
personal freedom, and proving of his innocence.
9. The cost to Halmos was many faceted: cost of attorneys,
investigators, accountants; lost time (four years); lost
opportunities; lost reputation. But the greatest cost - and the
one most difficult to recompense - was psychological and
emotional. To Halmos, indeed to any corporate executive, the
criminal investigation threatened his career, his family, his
personal safety and his personal freedom.
10. SafeCard's top executives and directors - those who
control it now - not only knew of the investigation and the toll
that it took on Halmos, but supported Halmos in fighting the IRS.
For example, William T. Bacon had been Halmos' friend, confidant
and financial advisor since 1975, and had been privy to Halmos'
business and career plans. Bacon had intimate knowledge of the
effect of the IRS investigation on Halmos' business plans, as
Bacon was to be Halmos' underwriter and financial advisor in new
public companies. Bacon also was acutely aware of the emotional
distress suffered by Halmos, and often gave him advice as to how
to deal with the stress and anguish the ordeal had inflicted upon
Halmos and Halmos' wife and children. Robert Dilenschneider,
another SafeCard director, represented himself to be a public
relations expert who was hired to restore Halmos' reputation,
which had suffered from the publicity given to the investigation.
Gerald Cahill, SafeCard's present Chief Operating Officer, was
present on the day of the IRS raid and often offered emotional
support to Halmos on the investigation Cahill was experienced in
these matters, as his prior employment had been as person in
charge of tax compliance for Resorts International. He worked
with Halmos most every day, and knew the emotional and
psychological effect that the criminal investigation had on
Halmos. Barry Tillis, SafeCard's inside general counsel, had
worked with Halmos for over ten years, and had been Halmos'
personal counsel as well as business partner. Tillis actually
represented Halmos in certain facets of his battle with the IRS.
Tillis knew as well as anyone the impact of the criminal
investigation on Halmos.
11. SafeCard's outside general counsel also knew of the
intense stress and pain that Halmos had suffered from his role at
SafeCard. Fried Frank Harris Shriver & Jacobson, and its
partners Harvey Pitt and June Gertig - who were SafeCard's
outside general counsel - knew intimately of the effect that the
criminal IRS investigations had on Halmos. Fried Frank
represented SafeCard in jointly defending against the
investigation, and had shared information with Halmos' criminal
tax counsel and others to facilitate the joint defense. Fried
Frank also had represented Halmos personally, and jointly with
SafeCard. Pitt had assured Halmos that he personally would work
to correct the wrongs done to Halmos as a result of his role at
SafeCard, and in fact had promised that hew old do so as soon as
the IRS investigation was over. As recently as February 17,
1993, Pitt wrote to Halmos of his respect, affection and
understanding of the turmoil that Halmos had been through:
Let me start by reaffirming my personal affection and
respect for you. As I have stated so many times, you are
someone who has accomplished so many things, and have
overcome so much adversity. Your life is a monument to
intelligence and perseverance, and you deserve to be
recognized for your accomplishments, and free of the
adversity that you obviously suffer through, even today. I
always hoped I could assist you in finding the right path to
your own goals, but I suspect that events may have overtaken
us both.
Pitt and Gertig not only were SafeCard's and Halmos' trusted
advisors, Halmos also considered them to be his friends.
12. After more than four years, on November 10, 1992, the IRS
formally closed its investigation of Halmos, with no finding of
any wrongdoing. In fact, the IRS has not claimed to this day any
additional tax was owed by Halmos. Although Halmos was
completely cleared of any wrongdoing, the damage to his
reputation for business integrity lingered, as did his emotional
scars. In fact, just recently SafeCard's counsel admitted that
the damage to Halmos' reputation for business integrity is so
great that Halmos is "libel proof". Instead of fighting along
with him to restore his reputation, however, his trusted advisors
and supposed friends used his emotional scars as part of a plan
to seize control of SafeCard and its $200 million cash hoard, and
"destroy" Halmos.
THE ATTEMPT TO DESTROY HALMOS
-----------------------------
13. In 1992, Cahill, Bacon, Dilenschneider, Tillis, Gertig and
others conspired to oust Halmos from any role at SafeCard.
Halmos' ouster was motivated by self-interest. The participants
sought to take over a successful, cash rich company to enrich
themselves, and at the same time prevent Halmos from being an
effective competitor and knowledgeable watchdog of their actions.
14. As part of the strategy, SafeCard and its agents moved in
several directions: to ensure that he would not interfere with
or impede their plan; and it secretly paid counsel fees for
unnamed SafeCard employees who had become covert IRS informants,
and supplied false information about Halmos to the IRS. Their
strategy also attempted to inflict severe emotional distress upon
Halmos, by attempting to subject Halmos to yet another criminal
tax investigation, this time by the Florida Department of
Revenue. SafeCard and its agents also attempted to extort Halmos
by falsely accusing him of embezzlement, and falsely threatening
to sue him in a manner that would subject him to criminal
liability. Armed with the knowledge of the devastating impact
these actions would have on a man who had already been subjected
to an intensive four-year, nationally publicized criminal
investigation, SafeCard acted - in a blatant attempt to destroy
Halmos.
SAFECARD'S ATTEMPT TO FRAME HALMOS FOR ITS
EVASION OF TAXES OWED TO THE STATE OF FLORIDA
---------------------------------------------
15. In 1989, the Florida Department of Revenue conducted a tax
audit of SafeCard's rental payments made to Halmos Trading &
Investment Company under the lease of the Cypress Creek
facilities, to determine whether such payments were subject to
Florida's sales tax. On SafeCard's behalf, Halmos Trading
successfully argued to the Department of Revenue that sales tax
was not owed on the entire lease rental payments. Upon
information and belief, the tax audit was instigated and spurred
on by the SafeCard/Halmos defalcating employee, as well as the
IRS case agent conducting the IRS criminal tax investigation.
16. After the audit was successfully concluded, saving
SafeCard an estimated $1 million over the course of the lease,
Halmos requested Gerald Cahill (then SafeCard's CFO) and Barry
Tillis (SafeCard's inside general counsel) to make timely lease
tax payments to the Florida Department of Revenue, and to pay any
outstanding and all future sales tax that was owed and would be
due. Despite this request, which was not even necessary because
SafeCard is contractually obligated to pay whatever sales tax is
due pursuant to the Lease, SafeCard's management made a
deliberate decision not to pay the tax, and to hide that fact
from Halmos.
17. As time passed, SafeCard's senior management and counsel -
Gertig, Cahill, Bacon, Dilenschneider, Tillis, Steven Halmos and
others - conspired to remove Halmos from SafeCard. Cahill even
bragged to Halmos' counsel in 1992 that SafeCard and its lawyers
"had enough on Halmos" to "destroy" him. SafeCard and its senior
management and counsel used SafeCard's intentional non-payment of
sales taxes as one method of destroying Halmos. They knew that
another tax investigation might indeed destroy Halmos and
accomplish their goal.
18. In early 1992, Safecard announced its decision to move its
corporate headquarters from Fort Lauderdale to Cheyenne, Wyoming.
At the time of the announcement, SafeCard had approximately nine
years remaining on its lease with Halmos Trading. In the Summer
of 1992, SafeCard began negotiations with Halmos Trading, and its
counsel, John Masters, on an agreement for SafeCard to buy out
the remaining nine years of the lease.
19. Unknown to Halmos, during negotiations with Gertig in
August and September, 1992, Halmos Trading, by and through John
Masters, demanded that any lease termination agreement contain a
provision that SafeCard indemnify Halmos Trading for any
outstanding current and future (if any) sales tax, which was
consistent with SafeCard's promise to do so in the lease itself.
On September 8, 1992, Gertig assured Halmos Trading's attorney,
John Masters, "not to worry about it." Cahill had earlier told
Masters that, due to SafeCard's plan to terminate its tax nexus
to Florida, "SafeCard doesn't want to look for new problems now
in paying sales tax," but assured Masters that sales tax would
either be paid or that SafeCard would indemnify Halmos Trading
for all sales taxes.
20. Despite Cahill's and Gertig's assurances, however,
SafeCard attempted to sidestep Masters and trick Peter Halmos,
who was ignorant of SafeCard's intentional non-payment of sales
taxes after the 1989 audit, into signing an agreement that placed
all tax liability on Halmos Trading. During the late afternoon
of October 29, 1992, a Thursday, Gertig sent directly to Peter
Halmos a proposed lease termination agreement. Gertig did not
send a copy of the agreement to Masters, the attorney
representing Halmos Trading and with whom she had been dealing
during the negotiations. The reason is obvious: her proposed
agreement did not include the promised sales tax indemnification
clause, but instead contained an unconditional release of all
liabilities of SafeCard to Halmos Trading, which would have
included SafeCard's liability for past due, current and future
taxes. This release would have subjected Halmos Trading to
liability for unpaid sales taxes, and would have opened Peter
Halmos to additional scrutiny by the state taxing authority.
21. Gertig insisted that Peter Halmos, on behalf of Halmos
Trading, sign her proposed agreement the next day, October 30,
1992. Gertig's stated reason for the rush was that SafeCard's
financial year was ending on October 31, and that the buy out of
the lease "had to take place before then." She wanted Peter
Halmos to sign the agreement within less than twenty-four hours,
even though the parties had not even agreed to the most material
term of the agreement - how much SafeCard would pay for the right
to terminate the lease and without conferring with Halmos
Trading's attorney, Masters. Gertig told Peter Halmos to sign
the agreement anyway, and that they could "worry about the
numbers later." Halmos refused to do so.
22. SafeCard's attempt to saddle Halmos Trading with the
liability for SafeCard's deliberate non-payment of sales tax when
due, was done with the intent to frame Halmos Trading's general
partner Peter Halmos. To subject Halmos to yet another tax
investigation, and potential liability, would go a long way
toward accomplishing SafeCard's stated goal of destroying Peter
Halmos.
THE EXTORTION BY SAFECARD
-------------------------
23. SafeCard's campaign to destroy Halmos continued with an
extortionate threat to falsely accuse Halmos of embezzlement, and
expose him to potential criminal prosecution.
24. On April 5, 1993, SafeCard's representative, Robert McCaw,
a partner in the law firm of Wilmer, Cutler & Pickering, met with
Cono Namorato, an attorney who had represented Halmos in
connection with the IRS criminal investigation. At the meeting,
McCaw demanded that Halmos give up business assets worth about
$50 million and pay $25 million in cash. Accompanying the demand
was a complaint prepared by McCaw's law firm for SafeCard which
accused Halmos of embezzlement and other misconduct.
25. Specifically, the complaint - which McCaw said had been
"authorized for filing" - falsely alleged that Halmos had forced
SafeCard to lend $2 million to Halmos & Company in 1987.
SafeCard further falsely accused Halmos of directing that the $2
million loan be written off and the promissory note evidencing
the loan be shredded. The complaint hinted at other foul play by
Halmos, noting that a copy of the promissory note had been hidden
away by Gerald Cahill, but had mysteriously "disappeared" from
his files. At the same time as it made these false allegations,
SafeCard had taken the opposite and truthful position in another
court that the $2 million had been paid by Steven Halmos as the
price for purchasing intangible assets from High Plains Capital
Corporation, and thus was not subject to Florida taxes. No
mention was made of the purported "loan", or the shredding of any
promissory note. See High Plains Capital Corporation and
SafeCard Services, Inc. v. Florida Department of Revenue, Case
No. 92-28030 (14) (Exhibit "B").
26. The Complaint had been "authorized for filing" by the same
persons who had stood side by side with Halmos during his fight
with the IRS: Pitt, Dilenschneider, Bacon, Cahill, Tillis and
Gertig. When McCaw delivered the "authorized for filing"
complaint to Cono Namorato, he stated that it would have
"regulatory, tax and criminal prosecution consequences" for
Halmos. McCaw threatened to file the complaint, and expose
Halmos to the "criminal" consequences, unless Halmos paid $25
million by the following morning. When McCaw's extortionate
threat was made, SafeCard knew that any hint of additional
exposure to criminal prosecution would be extraordinarily
stressful to Halmos, who had just finished his long struggle
defending and defeating the IRS criminal investigation. SafeCard
also knew that the person receiving the threat as Halmos'
representative - Cono Namorato - had represented Halmos in the
IRS matter, and was the former deputy attorney general in the
criminal tax division of the Justice Department of the United
States. Namorato was certainly aware of the "tax and criminal"
consequences of SafeCard's false allegations, and SafeCard meant
for him to convey those consequences to Halmos.
27. When Halmos refused to be extorted and filed suit against
SafeCard, SafeCard did not file the complaint containing the
false allegations of embezzlement. Instead, in retaliation it
filed a different complaint, which contained no reference to the
supposed $2 million embezzlement (but did continue to include
other false and fraudulent allegations but none having "criminal
consequences"). Clearly, showing Halmos the "authorized for
filing" complaint was merely a ploy to attempt to extort Halmos,
by threatening him with false allegations that could
lead to criminal prosecution.
COUNT I
-------
(Personal Injury by Intentional Infliction
of Emotional Distress)
28. Halmos realleges paragraphs 1 through 27.
29. In attempting to set Halmos up for criminal prosecution -
by saddling him with SafeCard's sales tax indebtedness and tax
evasion and by falsely accusing him of embezzlement, in order to
extort $25 million from him - SafeCard acted outrageously, and in
a manner beyond all bounds of decency. Its conduct was odious
and utterly intolerable in a civilized society.
30. SafeCard's outrageous conduct was done with the knowledge
that Halmos was peculiarly susceptible to emotional distress,
because of his intense and costly four-year public defense of the
IRS investigation, the resulting lawsuits and negative publicity,
and the constant risk of retaliation by the IRS and "other
Federal authorities." SafeCard knew of Halmos' peculiar
susceptibility to emotional distress from the threat of criminal
prosecution, and the retaliatory fuel that the allegations gave
the IRS, yet it heartlessly and flagrantly proceeded in the face
of such knowledge.
31. Because of Halmos' long relationship with SafeCard - a
company that he had founded and nurtured for more than two
decades - SafeCard had the power to adversely affect Halmos'
interests, by falsely and publicly accusing him of criminal
conduct, and by actively attempting to saddle him with criminal
tax liability.
32. SafeCard acted intentionally and/or recklessly, and knew
or should have known that the emotional distress would likely
result.
33. SafeCard's actions caused Halmos severe emotional
distress.
34. Halmos has suffered damage, in the form of mental anguish,
loss of ability to enjoy life, lost earning capacity, and other
damages as a consequence of SafeCard's intentional and outrageous
conduct.
35. SafeCard's conduct was intentional, wilful and wanton, and
warrants the imposition of punitive damages.
WHEREFORE, Halmos demands judgment for consequential and
punitive damages against SafeCard, including costs and
pre-judgment interest, and such further relief as is just.
COUNT II
--------
(Breach of Contract)
36. Halmos realleges paragraphs 1 through 5.
37. In 1988, based in part on his difficulties as SafeCard's
public target and his desire to expand his career, Halmos
informed SafeCard that he would no longer accept compensation
from SafeCard, and that he would be withdrawing from management
responsibility of SafeCard. As of March 15, 1988, Halmos ceased
accepting any compensation from SafeCard. For the next several
months, Halmos handled only a few limited projects for SafeCard,
without compensation. On July 1, 1988, however, SafeCard's board
of directors, led by director William T. Bacon, pleaded with
Halmos to resume an active day-to-day supervising management role
in SafeCard's offices. Halmos was unwilling to do so unless
SafeCard expressly reaffirmed and renewed its agreement to
provide him with full indemnity under SafeCard's Articles of
Incorporation and By-Laws, and in accordance with Delaware law,
which provided for advance payment of attorney's fees and
expenses.
38. SafeCard agreed to do so. At the meeting on July 1, 1988,
SafeCard's board agreed to indemnify Peter Halmos and Steven
Halmos and their respective affiliates, and agreed to pay all
fees and expenses in any legal or administrative proceeding with
regard to their relationship with SafeCard to the fullest extent
permitted by law. SafeCard reaffirmed its agreement in its
September 2, 1988 proxy statement, in its 1988 Annual Report and
SEC Form 10-K for 1988, and in its public filings for subsequent
years.
39. In consideration for SafeCard's agreement to indemnify him
to the fullest extent provided by law, Halmos agreed to continue
supervisory management responsibilities for SafeCard.
40. Halmos has been damaged by SafeCard's filing of its claims
against him in this proceeding. The damages include attorney's
fees, costs, and lost earnings.
41. Despite demand, SafeCard has refused to honor its
agreement to indemnify Halmos for the damages suffered by him
from the filing of its claims against Halmos and has refused to
advance his expenses. SafeCard's lawsuit against Halmos arises
from his relationship with SafeCard, and thus Halmos' expenses in
defending the suit and prosecuting its counterlaims are
covered by the indemnity agreement.
WHEREFORE, Halmos demands judgment against SafeCard for
damages, including pre- and post-judgment interest, costs and
attorney's fees and such other amounts as the Court may deem
appropriate.
JURY TRIAL DEMAND
-----------------
Halmos demands trial by jury on all issues so triable.
DATED: January 14, 1994.
TEW & GARCIA-PEDROSA
Attorneys for Peter A. Halmos
Miami Center, Suite 2600
201 South Biscayne Boulevard
Miami, Florida 33131
(305) 536-1112
By_______________________________
THOMAS TEW
FLA. BAR NO. 098160
JOSE GARCIA-PEDROSA
FLA. BAR NO. 137115
LAWRENCE A. KELLOGG
FLA. BAR NO. 328601
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CERTIFICATE OF SERVICE
----------------------
I HEREBY CERTIFY that a true and correct copy of the foregoing
was hand-delivered this ____ day of January, 1994 to Carol A.
Licko, Esq., Thomson Muraro, et al., One Southeast Third Avenue,
Suite 1700, Miami, Florida 33131, and mailed to Robert B. McCaw,
Esq., Wilmer Cutler & Pickering, 2445 M Street, N.W., Washington,
D.C. 20037-1420, Stuart H. Singer, Esq., Kirkpatrick, Lockhart,
et al., Miami Center, Suite 2000, 201 South Biscayne Boulevard,
Miami, Florida 33131 and Thomas Seymour, Esq., Kenny, Nachwalter,
et al., Miami Center, Suite 400, 201 South Biscayne Boulevard,
Miami, Florida 33131.
By: /s/
--------------------------
OF COUNSEL
