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TransDigm et al Contracts, Complaints & Anti-Trust Part II

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Posted on June 12 2019

 

Transdigm Shareholder Class Action(s)

 

See Part I  - I make zero apologies for the length of Part II. Nor am I contrite for the numerous embedded links. This was a lot of (at times tedious) work to chase down multiple receipts. I do not regret taking the time to procure original documents and then reading them and oddly understanding what’s in said documents. It’s also super weird, that it is almost like I’m not a bored housewife shoving bon-bons in my  calorie hole.

 

Welcome to my actual wheelhouse. Where the convergence of legislative matters, contractual obligations, meets judicial filings and then meets Government OverSight. Which then culminates into, Contracts Terms and Conditions, Judicial Orders, Final Judgments and Private-Equity-like braid together. Although I am genuinely curious Transdigm touts “Private-Equity-like” as an enticement to attract more investors. Is private equity-like - is that similar to RICO-like? Or is it more inline with Anti-Trust-like? Or Securities Fraud-like? 

 

Although with respect to Transdigm - I ended up creating several tilt-tables so I could aggregate the contracts, determine the whole “supply chain” Oh and a sprinkle of how many contracts and wait...what was the total contract value? Seriously pardon me while I drop an Iron Mountain Truck load of files. Oh so many files. 

 

Remember how I said that TransDigm is locked in to a massive class action lawsuit, where investors are suing TransDigm? See Case: 1:17-cv-01677-DCN, apologies for the original compliant is behind a paywall:

Case No. 1:17 CV 1677 (sorry paywall)

CITY OF HOLLYWOOD FIREFIGHTERS’ PENSION FUND v TRANSDIGM GROUP, INC et al  

Case No. 1: 17 CV 1958

CITY OF WARREN POLICE AND FIRE RETIREMENT SYSTEM v. TRANSDIGM GROUP, INC., et al. 

On December 4, 2017 of the aforementioned cases, the Court consolidated the cases and the previous class certification unaffected by the consolidation.

See - 9 page Memorandum and Order.

 

Transdigm Class Action Complaint

 

 

 

December 2018 Second Amended Complaint:

 

The lead Plaintiffs, City of Hollywood Firefighters’ Pension Fund clearly committed an extraordinary amount of time and resources to assist them with this Complaint. Based on the plains reading of the Second Amended Complaint - one could competently argue there’s nothing specious about this Complaint. While some might argue these Class Action Complaints are “frivolous” and are wholly without merit, then you may want to re-read the Securities Act. 

For Example, I now refer you to page 2 in  I NATURE OF THE ACTION  - paragraph 1, which reads in part:

 

“...interviews with numerous, former employees of TransDigm Group Incorporated (“TransDigm” or the “Company”); (ii) TransDigm’s public filings with the Securities and Exchange Commission (the “SEC”); (iii) in-depth research reports by securities and financial analysts; (iv) transcripts of TransDigm’s conference calls with analysts and investors; (v) presentations, press releases, and reports regarding the Company; (vi) consultations with relevant experts; (vii) news and media reports concerning the Company and other facts related to this action; and (viii) data reflecting the pricing of TransDigm common stock. Lead Plaintiff believes that substantial additional evidentiary support for its allegations will be developed after a reasonable opportunity for discovery.

 

Again I’m not an attorney nor did I stay in a Holiday Inn last night. Yet even I know when your second amended complaint’s opening paragraph is a recitation of laying down, chapter and versus of the fruits of your own investigation. That’s one helluva opening statement.  In my line of work, that is what you call: buckle up - we might hit some turbulence.  Also per chance an out of court settlement, I beseech you let’s settle this matter out of Court?  

Indeed, facts tend to be pesky little inconvenient nuggets of truths. I’m also pretty sure that the sound you heard was Transdigm CEO & Executive Team “calling Saul or Kasowitz”. Also in my head I’m pretty sure, Transdigm’ Senior Executives tflipped their gold leaf, diamond encrusted solid mahogany executive-style desks over and then immediately pivoted  to inaudible... sobbing. Sometimes you just need to go straight up Jersey - I will flip shit to express my outrage.

 

 

The last sentence literally says it all: 

 

 

The following paragraph is just a complete and total annihilation of Transdigm’s  business practices, cost/pricing model, decades long fleecing of our Government and gross unjust enrichment. 

  TransDigm’s meteoric rise was the direct result of a plethora of unscrupulous and unlawful practices, the sole purpose of which were to maximize the Company’s revenue at the expense of its largest customer—the U.S. Government. (emphasis added) 

 

I should emphasize that this Class Action Complaint is a civil matter, meaning it’s not criminal, yet. Which is in fact the operative word. Throughout this Complaint the Plaintiffs alledge that Transdigm broke the law, specifically Federal Contract Law, impermissible proposal rigging and a variety of other “crimes” committed in the furtherance of scheme to price fix and defraud the United States of America. Again not to belabor the fine point here, this is/was  a civil matter which typically has a much lower evidentiary bar. Whereas in Criminal Matters Prosecutors must prove the elements of a crime, up to but certainly not limited to: reasonable doubt. Again keep in mind these statements of facts a full three months before the February 2019 DOD-OIG report. Which should give you a reasonable understanding why the parties filed a third amended complaint. 

In mid-March of 2019 the Plaintiffs became aware of the late February 2019 DoD-OIG Report. Accordingly the Plaintiffs subsequently filed their third amended complaint. Substantively speaking the 3rd Amended Complaint is duplicative of previous filings except in one area - the meritorious nature of Transdigm’s “fraud and monopolistic” business model in “the furtherance of defrauding investors”. Meaning that the Plaintiffs used the OIG Report to buttress and fortify their original arguments and insofar as to enumerate their particularized and cognizable injury.

As for the colloquiums of “Golden Parachutes” this is actually pretty bad and the Plaintiff should be lauded for their perfectly calibrated argument. Moreover the Plaintiffs, in my view have made a strong showing and meritorious argument as it relates to the securities issues TransDigm should face. Specifically the (what appears to be) a protracted scheme to violate the a Securities Act.  I now refer you to pages 58 and 62, respectively - on page 58 the Plaintiffs inserted a graph that shows in pretty stark terms the attrition of them CEO Howley’s sales of stocks of which he oddly sold and retained just before the stock took a significant downward hit. -cough - insider trading...something something.

 

 

Based on the data I sure looks like 2016 Howley “took advantage of the over inflation of TransDigm’s stock prices” - in my industry that’s what’s known as “stop. you’re caught red handed and likely broke numerous securities statutes” and this data could very well be used by the SEC - if they are inclined to conduct an enforcement action against Transdigm. That said the Plaintiffs assertion also cast a pretty wide net and when you see the word “insiders” (see paragraph No 141) within a Complaint concerning fraud and securities issues - that’s bad. Like Martha Stewart bad.

 

 

The Plaintiffs then itemized the largesse of Transdigm’s Executives - hence my invocation of “Golden Parachutes” like $80million...

May 10, 2016 through June 30, 2016, six insiders sold 198,740 shares for proceeds of $52 million. Of that, Howley accounted for over half alone, grossing $26.5 million by selling 100,000 shares in a single trading day on June 8, 2016.

All told, TransDigm insiders sold over 330,000 shares of TransDigm common stock during the Class Period at materially inflated prices for proceeds of more than $87 million: 

 

The June 8, 2016 transaction is actually pretty relevant. In order to understand the business landscape of Transdigm’s and its Executives, if you’re going to want a sharper picture then you need to research +/- 3 days from the June 2016 stock sell-off. And then once you do that, you start to see the “why” - for example on June 9, 2016 Transdigm filed the following SEC Report

 

Ask yourself why would a majorly of Transdigm’s Executives sell off hundreds of thousands of their shares - which netted them a cumulative sum of >$80million. Given <24 hours later on June 9, 2016 the company “officially” announced that Transdigm had secured funding via loans in the following aggregate:

 

received the funding of an additional term loan of $500 millionmaturing in 2023 at a current rate of 3.75% (the "Tranche F Term Loan"), received the commitments of a delayed draw term loan of $450 million, converted $790 million of existing tranche C term loans into Tranche F Term Loans, amended its existing credit agreement to, among other things, permit additional restricted payments (including dividends and share repurchases) in an aggregate amount not to exceed $1,500 million, subject to the satisfaction of certain conditions, and that it has successfully completed the previously announced private offering of $950 million aggregate principal amount of 6.375% senior subordinated notes due 2026 (the "Notes").

 

 

You might find this January 2019 SEC letter of keen interest  - especially starting on page six re Case No: 1:18-cv-11344

 You may also find this November 2018 letter from Transdigm to the SEC a rather interesting read, especially this particular rationale - I suppose acquisitive is the new “Anti-Trust” - also I believe the number proffered by Transdigm outside counsel is serious “lawyering”. And clearly the “decentralization” isn’t a bug in Transdigm’s complex web of distribution channels, wholesale, fabricators and a mixture of shell and shelf companies is actually a “feature”. Thus allowing Transdigm to play hide and seek but zip it on certified and uncertified pricing. 


The Company is also highly acquisitive, having completed approximately 50 acquisitions since its initial public offering in 2006. The Company's approach to acquisitions is consistent with its decentralized organizational philosophy and driven by the potential for individual target businesses to generate value based on their product and customer profiles and growth rates, rather than as part of broader, enterprise-wide efforts to achieve synergies or economies of scale, increase market shares or diversify product offerings or markets.

 

Here’s my prediction in <6 months the DOD-OIG will confirm the following in no particular order:

  • Transdigm et al have fleeced our Government to the tune of at least $87million
  • There will be extensive documentary evidence that will prove kick-backs, price gouging, price fixing and other unlawful conduct specific to FAR and TINA
  • At least two sets of “books”
  • the SEC will initiate “insider trading” and multiple Securities Act violations.
  • Highly classified documents surrounding the various military jets, helicopters, etc will be mysteriously leaked.
  • that the private equity financing will likely have ties to at least two foreign governments.
  • The FTC, FAA, DCAA, DOJ & DOD - chum in the water for a feeding frenzy.

 

 

DOJ Anti-Trust v Transdigm

 

United States v.

TRANSDIGM GROUP INCORPORATED

Case No: 1:17-cv-02735

Complaint (December 21, 2017)

Competitive Impact Statement

Explanation of Consent Decree Procedures

Hold Separate Stipulation and Order

Proposed Final Judgment

 

This isn’t my opinion. This is a fact. The Justice Department had actual concerns which acted as a catalyst for their Anti-Trust Division to file in District Court.

Department of Justice’s COMPETITIVE IMPACT STATEMENT filed in District Court December 2017

 

United States v Transdigm Final Judgment (March 27, 2018), this Department of Justice Link will take you to the Anti-Trust landing page in the above-entitled matter. On April 4, 2018 the Court Ordered Transdigm divestiture,

see pages 5 and 6 of the Final Judgment I’ve highlighted the relevant sections and subsections. Yes I know I sound like a broken record but the fact remains, our Justice Department viewed Transdigm’s business model was flouting our Anti-Trust statutes and viewed their business model as anti-competitive that compelled them to file a civil action against the company. So unless I’m reading pages 5 & 6 incorrectly - there appears to be an issue and I’m not sure why the DOJ, Congress and/or Courts are giving Transdigm a pass.   

 

 TransDigm is ordered and directed, within 30 calendar days after all necessary regulatory approvals have been obtained from the Committee on Foreign investment in the United States ("CFIUS") and the German Federal Ministry of Economic Affairs and Energy (the
"Bundesministeriumfilr Wirtschaft und Energie"), or 30 calendar days after the Court's signing of the Hold Separate Stipulation and Order in this matter, whichever is later, to divest the Divestiture Assets in a manner consistent with this Final Judgment to Perusa and MEP KG, divest the Divestiture Assets in a manner consistent with this Final Judgment to Perusa and MEP KG, 
 

Which means I’m curious to know the following: 1) why hasn’t the docket been updated to reflect an “alternative acquirer”, or 2) notice of a 60 day extension, and 3) where is the CFIUS and German Foreign Ministry “approvals”?

Moreover there two specific entries in question and bound to the April 2018 final judgement (besides Transdigm)

Entity # 1 MEP KG  means SSP MEP Beteiligungs GmbH & Co. KG, a German limited partnership with its headquarters in Munich, German

Entity # 2  Perusa means Perusa Partners Fund 2, L.P ., a Guernsey limited partnership with its headquarters in St. Petet Port, Guernsey - specifically I ran multiple searches in:

German Federal Ministry of Economic Affairs and Energy yields exactly zero returns

 

🌶SpicyFiles-Sidebar🌶 if you don’t know what the CFIUS acronym means: 

Committee on Foreign Investment in the United States = CFIUS this is a cross agency governing body, the Treasury Secretary serves as the Chairperson.

CFIUS is an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person (“covered transactions”), in order to determine the effect of such transactions on the national security of the United States.  CFIUS operates pursuant to section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (FINSA) (section 721) and as implemented by Executive Order 11858, as amended, and regulations at 31 C.F.R. Part 800. 

Members of CFIUS include the heads of the following departments and offices:

    1. Department of the Treasury (chair), Sec Mnuchin
    2. Department of Justice, AG Roy Cohn 2.0 dba Bill Barr
    3. Department of Homeland Security “Acting” McAleenan*
    4. Department of Commerce, Sec “I am a perjurer” Ross
    5. Department of Defense, “Acting” Shanahan
    6. Department of State, Sec Pompeo
    7. Department of Energy, Sec Perry
    8. Office of the U.S. Trade Representative, USTR Lighthizer
    9. Office of Science & Technology Policy - Droegemeier

The following offices also observe and, as appropriate, participate in CFIUS’s activities:

  1. Office of Management & Budget - Mick Mulvaney 
  2. Council of Economic Advisors - Kevin Hassett (departing soon)
  3. National Security Council - NSA John Bolton
  4. National Economic Council
  5. Homeland Security Council

The Director of National Intelligence and the Secretary of Labor are non-voting, ex-officiomembers of CFIUS with roles as defined by statute and regulation.

CFIUS hasn’t filed or submitted a report to Congress  since September of 2017. That is problematic and I don’t know why others are not concerned about the lack of statutorily required reports. 

 

09/2017 Annual Report to Congress for CY 2015
​02/2016 Annual Report to Congress for CY 2014

 

Transdigm’s August 2018 SEC filing, on page 7  disclosed the DOJ matter, but does not state the divestiture as per the Final Judgment. Not to belabor the point, the Final Judgement dated April 4, 2018 ordered Transdigm to divest within 30 days after the regulatory approvals both CFIUS and Germany - I have yet to find any such divestment as required by the Court’s final judgment. I ran a word search in Transdigm’s August 2018 SEC filing  - neither Perusa or MEP KG appear in their filing. 

TransDigm Group “completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61.4 million.”  

 If Transdigm and/or the Government filed for a 60 day extension then the docket for Case 1:17-cv-02735-ABJ would be updated. The last entry is April 4, 2018 - below is a fresh docket report. Alternatively since this case is closed one could infer that the divestiture has occurred but it clearly has not. I ran multiple searches and to the best of my research abilities the only conclusion I have is Transdigm is in material breach of the April 2018 Final Judgment.

 

 

At this point, based largely on the growing factual basis, it only makes sense that we start asking the following series of uncomfortable questions:

The United States Government felt the need to file action against Transdigm for anti-trust violations, then 

WHY. ARE. THEY. STILL. AWARDED CONTRACTS?

The United States Defense Department OIG - has submitted at least 9 Audits - the corollary is Transdigm “excessive pricing” -

WHY. ARE. THEY. STILL. AWARDED CONTRACTS?

Transdigm own shareholders are in the midst of a multi-year litigation battle where shareholders have “alleged” Transdigm has a complex scheme to defraud investors and the Government.

WHY. ARE. THEY. STILL. AWARDED CONTRACTS?

Congress has competently argued that Transdigm business model has fleeced the DOD and we, the tax payers, to that end Transdigm has “voluntarily” refunded the DOD.

WHY. ARE. THEY. STILL. AWARDED. CONTRACTS?

Because the DOD was and is aware of Transdigm transgressions yet I can not find any Contract Modification that either;

1) puts stringent price controls or in places a profit ceiling, and/or

2) requires a mandatory quarterly audit (of which Transdigm should pay for), and/or

3) places a profit ceiling on the “exclusive” spare parts, and/or

4) no SEC enforcement or litigation notice.

Here’s a simple analogy if you know someone is a shopaholic - do you hand them multiple American Express Black Cards? Hell NO so why are Contracting shops still awarding Transdigm NEW Contracts?

 

Is it because of Transdigm “decentralization” business model that Contracting Officers can’t figure out if said Company is a TransDigm subsidiary? If that’s the reason, pardon me while I blow holes in that argument/excuse. There are two very specific timeframes in which Transdigm went on a spending spree - buying up companies 2011 thru 2014 - then in 2016 Transdigm went on a major acquisition buying spree. 

 

🌶SpicyFiles Acronym Glossary - the DC Alphabet Soup 🌶

Total Contract Value - TVC

Department of Defense - DoD or DOD

Defense Logistics Agency - DLA

Modification Or Change Order - MOD or CO

I am still in the process of running multiple searches because I want to make sure I’ve captured all the DOD contract awards but the scope of Transdigm’s subsidiaries and distribution supply chain is rather complex. Notwithstanding below  are a few contracts that I managed to curate. My intention is to upload ALL contracts in Part III of the Transdigm Series.

 

Elektro-Metall Export GmbH

March 6, 2014, TransDigm Germany GmbH, a newly formed subsidiary of TransDigm Inc., acquired Elektro-Metall Export GmbH for approximately $49.6 million, which comprises $40.4 million in liquidity- See DOJ Anti-Trust Complaint embedded in previous paragraphs.

 

See total contracts awarded to Transdigm’s AEROCONTROLEX GROUP, INC.

 

Whippany Actuation Systems, LLC

DUNS 078880610 Parent DUNS 135472285

June 28, 2013, a subsidiary of TransDigm Inc., who  acquired the assets from GE Aviation's Electromechanical Actuation Division for approximately $151.5 million in cash. This is the USASpending query for subcontracts (which predominantly came from DLA)  - this is their Prime Contract Awards

 

AmSafe Global Holdings, Inc.

DUNS 825847002  Parent DUNS 135472285

February 15, 2012, TransDigm Group “acquired all of the outstanding stock of AmSafe Global Holdings, Inc. (AmSafe), for approximately $749.7 million in cash. AmSafe is a leading supplier of innovative, highly engineered and proprietary safety and restraint equipment...The distribution business acquired as part of AmSafe was sold on August 16, 2012 for approximately $17.8 million in cash. The equity investment in C-Safe LLC acquired as part of AmSafe was sold in October 2012 for approximately $16.4 million, which consisted of $5.0 million in cash at closing and an $11.4 million short-term note receivable, which was subsequently received in installments during fiscal 2013.” Since Transdigm’s acquisition 2012 the DOD has issued 75 Prime contracts, totaling millions in revenues.  

Conversely only 6 subcontracts were awarded which represents $356,345.00 but you should pay attention to the single part at $35+K and the awards only for 2018 and 2019 - given AMGLOBAL is Transdigm’s “exclusive distributor” this certainly should be scrutinized by auditors.

 

Arkwin Industries, Inc.

DUNS 002037513 Parent DUNS 135472285

On May 13, 2013 TransDigm Inc. Announcement via the PRNewsWire  planned to acquired all of the outstanding stock of Arkwin Industries, Inc. (Arkwin), for approximately $285.7 million in cash. The acquisition was finalized on June 13, 2013, post acquisition to present the DoD awarded 1,402 Prime Contracts. Below I’ve taken the liberty of embedding a few of the “larger contract awards” predicated on a Total Contract Value (TVC) of >$150K or >$250K cumulative amount.

Contract Award SPRRA118C0077  TCV = $1,571,228.00 start date: 9/25/2018

Contract Award: SPE4A714C0595 TCV =  $1,811,065.00 start date 8/14/2014, Agency: DoD subAgency: DLA 

 

For now I’m going to set this aside, at the present time I have two computers and 1 laptop running multiple searches in multiple databases. But the USASpending is running painfully slow. At any rate in Part III - I’m going to whipsaw through Transdigm’s mergers and acquisition and layout my findings of their completely unethical business model. Plus I’m trying to control my anger that our Government is still awarding contracts to this company and apparently can’t identify all their subsidiaries. I can’t really fault them given last night I thought I had captured all 109 subsidiaries until just over an hour ago that subsidiary number increased to 153. Swear it Gawd it’s like a moving target of companies and the chasing down of their “private equity” funding...you can run and hide but eventually I’ll find what a s how you are hiding that pertinent information. -SpicyFiles out

ps Imagine what I’m like when I have my work hat on and I’m being paid to drill down...for the record I’m not paid to blog this is what I do to unwind from my actual job - which does not include Dyson-ing bon-bons (I changed it to Dyson because Hoover vacuum cleaners do not have the suck power of a Dyson) - snort 

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