Investment firm sues UFD for $2.1 million

• United Fiber & Data, a York City-based company founded by members of Live, is being sued for $2.1 million.
• The investment bank UFD had hired says it's owed money for investments by Louis Appell and Bob Kinsley.

York City-based fiber-optic company United Fiber & Data's former investment bank is suing the company in federal court, alleging that the local company owes the firm more than $2 million.

A lawsuit filed in March of this year in New York's southern district federal court alleges that UFD suddenly broke off contact with the investment bank it had contracted — possibly because the bank's investors had tried to encourage the company to boot CEO Bill Hynes — and then stiffed the firm its share of the millions York-area investors had dropped into the project.

When reached by phone Monday night for comment, Hynes was brief.

"They're full of s—," Hynes said. "We don't owe them a penny."

Hynes didn't respond directly to questions about any attempts to remove him. When he didn't get what he found to be a satisfying response about how the Dispatch came to search for the lawsuit, he became angry.

"Then here: Go f— yourself," he said before hanging up.

UFD, which was founded by three former members of the York-based rock band Live, contracted Olympus Securities in April 2015 to help the company secure $30 million in financing for its project that would span a high-speed fiber-optic network from New York City to the Washington, D.C., area.

The lawsuit: According to the engagement letter provided  with the lawsuit, UFD agreed to pay the New Jersey-based investment bank $10,000 a month as a retainer, plus 7 percent of any investments over $1 million in the project and the ability to purchase 10 percent of the securities sold by UFD. The agreement extended through Oct. 31, 2015, and didn't include any kind of termination clause, according to the letter and the lawsuit.

UFD did pay Olympus the monthly retainer for a couple of months, and, on July 28, 2015, began to enter into an agreement with a pair of investors Olympus kept unnamed in the lawsuit, according to court documents. The investors initially proposed investing $40 million in the project, the documents state.

But then, on Aug. 5, 2015, the primary investor pulled out, the suit says.

"All of the potential investors ... raised concerns about Mr. Hynes' qualifications to serve as the CEO of UFD and suggested replacing him with a more reputable and experienced manager," the suit states. It further alleges that "in response to these concerns, UFD's management went so far as to draft a board resolution removing Mr. Hynes from both management and the board."

But no resolution to that end ever went into effect.

The York Dispatch reported in July 2014 that Hynes had been convicted in 2010 of felony theft by unlawful taking for business transactions in Northampton County. He served about three weeks in jail, he told the Dispatch two years ago.

Hynes expressed further interest in getting the investors' backing, the suit says, but UFD kept bringing up how this would affect possible investments by longtime UFD backers Louis Appell Jr. and Robert Kinsley. Appell, who passed away in June of this year, was a key businessman and philanthropist in the area, and Kinsley runs the York City-based Kinsley Construction.

Contract: On Aug. 17, 2015, the suit alleges, Hynes sent Olympus an email saying that UFD was terminating its relationship with the firm.

In the suit, Olympus said that it believes this was "to try to avoid paying any fees ... and because Mr. Hynes wanted to avoid being removed from his position as CEO."

York-based UFD connects into New Jersey

Olympus alleges that this termination of the contract "wasn't effective" — that it didn't end just because UFD wanted it to — because there was no early termination provision in the agreement both parties signed.

For a couple of months, management at UFD didn't respond to calls, emails and text messages from Olympus asking for further information about what UFD was doing, according to the lawsuit, except to have the York-based company's lawyer send a "threatening letter."

In October 2015, Chad Taylor, one of the founders of UFD and guitarist for Live, told Olympus that UFD had raised "substantially more" than $30 million from Appell and Kinsley, according to the lawsuit.

Hynes, in an email several hours after the phone conversation, denied that either Appell or Kinsley gave that amount of money for the project. He wrote that the cash they had plus contracts from companies who would be using the fiber optic system covered the cost.

The proposed 400-mile fiber-optic backbone that will be routed through rural areas, including York County, from New York City to Ashburn, Virginia, is scheduled to be completed by the end of the year, Hynes told The York Dispatch in February. As reported in a Dispatch article that ran Feb. 21, 2016, Hynes also said that the project was funded entirely by private investors.

The fact that Hynes publicly said that was referenced in the lawsuit as further evidence that UFD had gotten millions of dollars from Appell and Kinsley.

Key points: So Olympus' argument boils down to a few key points. First, the firm argues that UFD couldn't just end the agreement before the termination date. And so, if the agreement was still active, as Olympus alleges, the firm should receive a cut of any large investments into UFD by people UFD and Olympus had talked about but not carved out an exemption for, according to the lawsuit. They had created such exceptions for a few organizations, but not Appell and Kinsley, the lawsuit states.

And even if the Appell and Kinsley investments happened after the planned end of the contract, the agreement letter has written into it that there's a "tail period" of a year, in which Olympus gets the same cut of any money from investors whom UFD and Olympus had discussed during the term of the agreement.

They'd talked about Appell and Kinsley, Olympus alleges, so if the pair had invested $30 million in the company, UFD owes the firm 7 percent of that, or $2.1 million.

A man who answered the phone at Olympus Securities on Monday afternoon and identified himself as a member of the company said his company had no comment. He then hung up.

A request for comment to the UFD general office line was not immediately returned.

Hynes and three of the members of the band Live — Taylor, Chad Gracey and Patrick Dahlheimer, all York natives — founded UFD in 2009. They all also run Think Loud Development, a company that is working with UFD on the fiber-optics project, which aims to spur business investment in the area by bringing high-speed internet to the region.

Hynes has said UFD's fiber-optic line will be immediately beneficial to large businesses and serve as an attraction for tech companies looking to expand or move along the East Coast. UFD's fiber backbone isn't directly meant for residential customers, so a company such as Comcast or AT&T would need to connect to the line for it to be available in homes, according to company president and COO Chris Lodge.

— Sean Cotter covers York City for The York Dispatch. Contact him atscotter@yorkdispatch.com or on Twitter at@SPCotterYD.