Nation & World

November 16, 2013

FBI has investigated DesignLine over used parts, attorney says

The FBI has investigated Charlotte-based bus maker DesignLine in the past year over allegations related to used parts on new buses, an attorney representing creditors of the bankrupt company told the Observer on Friday.

The FBI has investigated Charlotte-based bus maker DesignLine in the past year over allegations related to used parts on new buses, an attorney representing creditors of the bankrupt company told the Observer on Friday.

The investigation is another blow for a company that once attracted investments from prominent Charlotte businesspeople and employed former Charlotte Mayor Anthony Foxx, now the U.S. secretary of transportation. The company filed for bankruptcy in August and laid off most of its workers.

FBI agents have interviewed former DesignLine employees about the used-parts issue in the past year, two sources familiar with the matter told the Observer. One source said the investigation is related to buses made before 2011.

The status of the investigation is unclear, and it’s uncertain if the company or any of its employees could face charges.

The FBI can neither confirm nor deny the existence of investigations, said Shelley Lynch, a spokeswoman for the agency, citing Justice Department policy. Lia Bantavani, a spokeswoman for the U.S. Attorney’s Office in Charlotte, declined to comment.

A group of investors led by retired Air Force Gen. Buster Glosson and his son, Brad, bought DesignLine, a maker of hybrid buses, in 2006 and moved the company from New Zealand to Charlotte. Foxx served as an in-house attorney from late 2009 until he took his Cabinet post in July.

The committee of unsecured creditors in the bankruptcy learned of the FBI investigation recently from the company, said Michael Barrie, one of the lawyers representing the committee. Barrie said he was told by another source that the investigation was about used parts being on the company’s buses, rather than new ones. He said he doesn’t know details about the allegations or the status of the probe.

As part of the Chapter 11 bankruptcy, the committee is investigating the “pre-bankruptcy conduct of the Debtors, its officers, lenders and equity security holders,” according to a court filing this month.

“We are looking at everything, including any potential misconduct by management to the extent that it existed,” Barrie said. “I can’t say if it existed or didn’t exist.”

On Friday, U.S. Bankruptcy Judge Craig Whitley approved the committee’s request to name a Chapter 11 trustee, Elaine Rudisill, to oversee the bankruptcy case. Rudisill declined to comment.

From a factory off Westinghouse Boulevard, DesignLine used hybrid technologies to make buses that used less fuel and were cleaner for the environment. The company landed contracts with transit systems in Baltimore, Denver and New Jersey, but it also faced lawsuits and contract cancellations over late deliveries and, in some instances, questions about whether the buses provided sufficient power. At its peak, the company employed more than 300 people.

Steven Polzin, director of mobility policy research at the University of South Florida, said it’s not unusual for reconditioned parts to be used on buses that are already in use, just like in cars. But it would be surprising for used parts to be installed on new buses, Polzin said.

“That would be something that the consumer wouldn’t be expecting,” said Polzin, who added that he is unfamiliar with DesignLine.

Although it’s unclear how the FBI came to investigate DesignLine, the federal government does play a major role in public transit. Transit systems around the country use grants from the Federal Transit Administration to partially pay for bus purchases, Polzin said. This is particularly the case with more expensive buses that use alternative fuels, he added. A DesignLine bus could cost as much as $550,000.

Buster Glosson, who stepped down as DesignLine’s chairman in May 2012, said he knew “absolutely nothing” about the investigation and said he had not been approached by the FBI. Brad Glosson, who was CEO until March 2012, could not be reached for comment.

Joseph Smith, who succeeded Brad Glosson as CEO and left after the bankruptcy filing, declined to comment.

Last month, Whitley approved California-based Wonderland Investment Group’s $1.6 million bid for DesignLine’s equipment, machinery, intellectual property and other assets. Tony Luo, Wonderland’s president, has said he plans to reopen DesignLine after he renegotiates contracts with customers. DesignLine’s original investors, though, aren’t expected to recoup the more than $30 million they put into the company.

On Friday, Luo said he had heard about the FBI investigation but didn’t know any details. He said he plans to operate the company under “high standards” going forward.

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