announced today he will axe the city’s embattled red-light camera vendor when its contract expires in July, citing new investigative findings that the company gave thousands of dollars in free trips to the former city official who oversaw the decade-long program.
Emanuel announced the action against Redflex Traffic Systems Inc. following the Chicago Tribune’s report today that the chairman of Redflex’s Australian parent company resigned this week and trading in the company's stock was suspended amid an intensifying investigation into allegations of corruption in its Chicago contract.
Redflex Holdings Ltd. announced the extraordinary actions just days after board members were briefed by an outside legal team hired to examine ties between the company's U.S. subsidiary and the city official who oversaw its contract, a relationship first disclosed in October by the Tribune. The company also revealed for the first time that it is sharing information with law enforcement authorities.
The internal probe found that company executives systematically courted former city transportation official John Bills with thousands of dollars in free trips to the Super Bowl and other sporting events, sources familiar with the investigation told the Tribune. The company also hid the extent of the improper relationship from
after the newspaper's reporting last year forced Redflex to partially reveal its ties to Bills, sources said.
Emanuel, who inherited the red-light contract when he took office in 2011, had already disqualified Redflex from bidding on his new speed camera initiative after the October disclosures. The new announcement means Redflex will lose what it has described as its largest North American contract. The mayor’s office gave the company a six-month extension last month while it opened the contract to bids, but at that time did not announce whether Redflex could compete to keep the business.
“Given these more serious allegations, we are declaring Redflex not responsible to bid on the new red light RFP when it is issued,” Emanuel spokeswoman Sarah Hamilton said in an email to the Tribune.
“The City is also engaging an independent firm immediately to audit the Redflex contract for all past and ongoing activities to ensure Chicago taxpayers are not cheated in any way. If there are any findings of illegal conduct or improprieties that show Chicago taxpayers were defrauded, the City will seek penalties to the fullest extent of the law.”
The Redflex internal probe and a parallel investigation by city Inspector General Joseph Ferguson are also raising more questions about the company's hiring of a longtime Bills friend who received more than $570,000 in company commissions as a customer service representative in Chicago, the sources said.
Bills did not return calls, but has adamantly denied any wrongdoing. "I would never have intentionally accepted a dime from Redflex, I wouldn't do that," he told the Tribune in October.
The latest developments run counter to the company's previous contentions that a whistle-blower concocted widespread accusations of internal wrongdoing and that a single company executive had mistakenly violated procedures by paying a one-time hotel tab for Bills. The reversal was acknowledged in a statement to the newspaper Thursday from the Australian company's CEO, who took over in September.
"Although the investigation is not over, we learned that some Redflex employees did not meet our own code of conduct and the standards that the people of the city of Chicago deserve," said Robert DeVincenzi, CEO of Redflex Holdings, the parent company of Phoenix-based Redflex Traffic Systems Inc.
"We are sharing information with law enforcement authorities, will take corrective action and I will do everything in my power to regain the trust of the Chicago community," DeVincenzi said.
Until the allegations were published by the Tribune, Redflex was positioned as a leading contender for
's new program to sprinkle the city with automatic cameras to tag speeders in school and park "safety zones." Emanuel's administration accused the company of covering up the wrongdoing allegations and disqualified it from bidding on the speed camera contract. Now the company faces the potential loss of its long-standing red-light program in Chicago, which has generated about $100 million for the company and more than $300 million in ticket revenue for the city.
The internal allegations were first made by a former Redflex vice president who wrote of the company's close relationship to Bills in a five-page internal memo emailed in 2010 to the Australian board of directors and obtained by the Tribune. In addition to making allegations about commissions to Bills' friend, the executive complained of "nonreported lavish hotel accommodations" for Bills.
The memo was addressed to Redflex Holdings board Chairman Max Findlay and sent overseas via email. Findlay and another board director, Ian Davis, were atop the list of recipients of the 2010 email.
The company announced both men's resignations in filings Wednesday to the Australian Securities Exchange, where Redflex is publicly traded.
Redflex did not indicate why the men were resigning. But on Thursday the company asked for and was granted by the exchange a four-day suspension of trading "until the earlier of 10 a.m. on Monday 11 February 2013 or an announcement being made."
"The trading halt relates to an update regarding financial aspects and the ongoing investigation in the USA," wrote company secretary Marilyn Stephens. The company did not elaborate on the trading action.
Redflex lawyers told the Tribune in October that a previous company-sponsored investigation by an outside law firm in 2010 found no wrongdoing but for a single hotel stay one top executive paid for Bills. Redflex Traffic Systems sent the executive vice president in question to "anti-bribery" training and revamped its expense accounting system, according to General Counsel Andrejs Bunkse.
Bunkse also said that neither Bills nor his friend the customer service representative were interviewed as part of the company's "exhaustive" three-week probe. He acknowledged the company's failure to notify the city of the allegations was a "lapse."
But in the wake of the newspaper's disclosure, the company announced it would pay for another outside review, this time by David Hoffman, a former city inspector general and federal prosecutor who is now a partner at the Chicago-based law firm Sidley
Hoffman last week presented the audit committee of Redflex's board with a starkly different version of events, reporting that Bills received thousands of dollars in pricey hotel stays, including tickets to at least one Super Bowl and
trips over the course of many years, according to sources. Hoffman's report implicated company executives in the wrongdoing and recommended that some be fired, the sources said.
Bills, a self-acknowledged Sox fanatic, moonlighted as a clubhouse attendant for the team for several years, including the 2005 World Series season.
Many of the questions about Redflex's success in Chicago revolve around the friendship between Bills, who was a $138,000-per-year managing deputy commissioner for the city Transportation Department, and Marty O'Malley, who was retained by Redflex as its Chicago liaison at the outset of the red-light program in 2003.
Both Bills — a longtime precinct captain in the political organization of House Speaker
— and O'Malley have acknowledged their longtime friendship but said the relationship played no role in O'Malley's hiring and had no influence on Bills' management of the contract. "I have never taken a dime from Marty," Bills said in October. O'Malley did not return a telephone message Thursday.
After retiring from the city, Bills worked as a consultant for the Redflex-funded Traffic Safety Coalition. He also was appointed to an obscure Cook County board known as a haven for those with political clout but was forced to resign the $34,000 post after the Tribune's disclosures.
Redflex has been a multinational player in robotic traffic enforcement for two decades. Chicago, with more than 380 red-light cameras, has long been Redflex's largest contract in North America, but the company supplies more than 2,000 cameras nationwide, from Oregon to Florida.
Last year the company opened a new vein of potential business in the U.S. when it bought two companies involved in putting camera surveillance on school buses to ticket the drivers of cars who illegally pass the stopped vehicles.
The company listed its annual revenue as $146 million in 2012. The company's stock was trading at $2.10 per share in October but dropped to less than $1.50 on news of the Chicago allegations. It was trading at $1.67 on Wednesday before trading was halted. The Australian dollar is worth about $1.03 in U.S. currency.