Below are some. but not all, of the reasons to replace Richard Wade (“Wade”) and Bill Mills (“Mills”) as the only directors of Vertical Computer Systems, Inc. (“VCSY”).
There are three legal actions that allege Wade and Mills’ wrongdoing which have devalued VCSY and shareholders’ investment and put Vertical’s status as a reporting company with the SEC in serious jeopardy (which could ultimately lead to the delisting of VCSY common stock, which means your common stock will not be publicly traded and that would, for all practical purposes, render the value of your shares and investment in VCSY unmarketable).
These actions are as follows: the Lakeshore Action, the Shareholders’ Derivative Action, and the SEC Action.
Please read the below summary and for additional details, please refer to the links at the bottom of the page.
To protect the value of your VCSY shares, your affirmative vote on your consent(s) is important. Every vote counts so please sign and return any and all shareholder consents you received as soon as you can. Please realize that if you hold VCSY stock in multiple accounts, you will likely receive multiple consents, each and all of them must be signed separately and returned for all of your votes to count.
The Lakeshore Action:
Lakeshore Investments, LLC (“Lakeshore”) sued VCSY and NOW Solutions (“NOW”), a VCSY subsidiary. Lakeshore is owned by Robert Farias, an individual who has been Wade’s accountant and tax preparer.
In May 2019, Lakeshore filed suit in the State of California against Now Solutions and VCSY. It recently added Wade as a defendant. This lawsuit seeks to obtain all the assets of Now Solutions and damages from VCSY in excess of $3,000,000.00 for its alleged failure to make payments set forth in a Promissory Note issued by Now Solutions to Lakeshore. Now Solutions has defenses to the Lakeshore Action. To our knowledge, Wade and Mills have not actively prosecuted the defense for Vertical or Now Solutions nor asserted any claims against Lakeshore. A failure to actively interpose the available defenses and counterclaims against Lakeshore will likely terminate any chance on the shareholders’ recovery of all or any portion of their investment in VCSY.
The Shareholders Derivative Action:
Luiz Valdetaro, the CTO of VCSY, and seven other Shareholders filed a derivative action on behalf of VCSY and its shareholders in the state of Texas against Wade and Mills as the only two directors of VCSY (they are also corporate officers). This Lawsuit seeks monetary damages for the improper and grossly negligent actions of Wade and Mills in their capacity as Officers and Directors of Vertical and alleged significant and numerous instances where they failed to take the required action to protect VCSY and its shareholders.
The SEC Action:
This action was by the SEC filed July 2020. The SEC suspended the trading of VCSY stock. The SEC seeks to revoke VCSY’s registration as a reporting company thereby eliminating the shareholder’s ability to publicly trade VCSY’s common shares directly as a result of Wade and Mills failure to file periodic financial reports. A shareholder filed an amicus brief that explains to the SEC what actions shareholders are taking to remove both Wade and Mills, since they are the only two directors of Vertical and are consequently, the two parties jointly responsible for the ongoing failure to make the required filings for Vertical with the SEC.
What is alleged in the Shareholder Action?
• Since 2012 Wade failed to pay many of the Now Solutions’ payroll trust fund taxes to the IRS. It is believed that the amount due is to over $1,000,000.00.. Other unknown amounts are also alleged regarding VCSY’s unpaid trust fund payroll taxes. (See below: the 3rd Amended Complaint, Page 4, paragraphs 8 thru 9).
• Wade was paid over $600,000.00 in 2018, while his contractual salary was only $300,000.00. He overpaid himself while not paying other employees and the payroll taxes. (See below: the 3rd Amended Complaint, Page 8, paragraph 17).
• Wade has been using the VCSY’s debit cards as if it is his own credit card to pay his non-business obligations and personal living expenses. (See below: 3rd Amended Complaint, Page 8, paragraph 17).
• Wade received personal loans from parties that Vertical and Now Solutions issued promissory notes, which personal loans were not disclosed to VCSY or the shareholders. As a result of his doing personal business with VCSY and Now Solutions noteholders, Wade gave “sweetheart” deals to these lenders to the detriment of VCSY and its shareholders. (See below: 3rd Amended Complaint, Page 4, paragraph 10).
• The CFO resigned in 2012 because of the unpaid payroll taxes and other non-compliance issues perpetrated by Wade and, apparently permitted by Mills in violation of Mills fiduciary duty to the shareholders. (See below: 3rd Amended Complaint, Page 4, paragraph 8).
• The outside independent Auditor’s resigned in 2019 for lack of financial controls and the refusal of Wade to institute the recommended controls. (See below: 3rd Amended Complaint, Page 4, paragraph 9).
• VCSY has not (i) held an annual shareholder meeting since 2015, (ii) has not had a CFO since 2012 and (iii) has not engaged an outside auditor since 2019. (See below:3rd Amended Complaint, Page 3, paragraphs 4 thru 6). The result is that Wade and Mills have kept unfettered control of VCSY and not permitted the shareholders to have their say guaranteed by the Amended and Restated By-Laws of VCSY.
• VCSY has not issued financial statements since the 3rd quarter of 2018. (See below: 3rd Amended Complaint, Page 4, paragraph 9).
What is alleged in the SEC Action:
• VCSY has not filed required periodic reports with the SEC since the 3rd quarter of 2018 (including Annual audited 10-K’s and Quarterly 10-Q SEC reports)(See below: SEC Order Instituting Administrative Proceedings and Notice of Hearing, pages 1-2, Paragraph A2).
What has been corroborated so far?
• While Wade’s salary was $300,000 per year, Wade’s W2 for 2018 for income earned at VCSY elicited in the Lakeshore Action was $655,892.25 (please see 3rd Amended Complaint, page 9, paragraph 18) according to the sworn testimony in a deposition of Robert Farias, Wade’s personal accountant and the principal owner of Lakeshore.
• In his deposition, Robert Farias’ testified that he had made tens of 1,000 of dollars in personal loans to Richard Wade (please see 3rd Amended Complaint, page 5, paragraph 11).
• In his deposition, Robert Farias also confirmed that Wade uses the VCSY’s debit card as his personal credit card (please see 3rd Amended Complaint, page 7, paragraph 15).
• In his deposition, Farias’ confirmed that Wade received much more than his salary in 2018 (please see 3rd Amended Complaint, page 8, paragraph 17).
• The SEC Action confirmed that VCSY has not filed its required reports since 2018 which prompted the SEC to initiate the administrative proceeding to determine if the SEC should revoke VCSY’s registration (please see the SEC Order Instituting Administrative Proceedings and Notice of Hearing, pages 1-2, Paragraph A2).
Here are the Links:
3rd Amended Complaint in the Shareholders Derivative Action (Texas)
(The Farias deposition can be found also in this document as Exhibit 3):
Dallas, TX- Court Portal- Valdetaro and Shareholder Derivative Action Against Wade and Mills
SEC Action concerning Vertical
(After clicking on the below link, please click on the first link to view the SEC Order Instituting Administrative Proceedings and Notice of Hearing:
SEC- Vertical Administrative Proceedings Documents
The Amicus Brief filed by a Shareholder on the SEC Action
Last updated on September 10, 2020